Part 2 of 2
In part one of this series, we identified the U.S. Treasury Department's embrace of electronic payments, and how such implementation will drive greater customer adoption of e-payments in the insurance industry. The time is now for insurers of all sizes to take advantage of this embrace, and to start thinking about widespread e-payments adoption, and how their antiquated payments infrastructures need to adapt. Below we will explore what insurance companies should consider when exploring this new mandate, and why change is necessary.
More Technology Options than Ever
There is no excuse for insurers to be caught flat-footed by the industry's move towards electronic payments. There are myriad electronic payments solutions that provide significant processing improvements -- from capturing images of checks and supplemental remittance documents at the point of entry (in the back-office or not), to clearing items via image (in lieu of paper cash letters) or converting eligible check transactions to ACH debits. These solutions are fast and cost-effective, particularly when compared with the cost of maintaining outdated checking systems.
Remote deposit capture, which enables insurers to truncate checks at the point of presentment, is helping the branch offices of insurance companies, and their independent agents, eliminate the costly and time-consuming transportation of physical items, significantly accelerating posting.
Using a computer and a scanner, remote deposit capture users scan checks, balance transactions, and securely transmit images in the industry standard X9.37 file format to their depository institutions for posting and clearing. The process breaks down the geographic boundaries of traditional paper check clearing, allowing insurers with far-flung locations to consolidate banking relationships, reduce banking maintenance fees, and improve availability. And insurers no longer are tied to bank branch hours for same-day check processing, and no longer have to manually list check amounts for deposit.
Additionally, image-based remittance solutions provide greater efficiency and effectiveness in processing, managing, storing and retrieving the tremendous amount of payments data required to service customers. By implementing image-based remittance solutions, insurers also can begin to migrate their operations to a paperless environment -- distinguishing themselves from competitors.
For instance, the ability of image-based remittance solutions to use advanced courtesy and legal amount recognition technology to 'read' check information reduces manual keying and accelerates processing. Image systems also speed the deposit process by automatically endorsing checks and allowing for the electronic deposit of checks. And, imaging streamlines the retrieval of payment images, as well as research of cross-referenced information when a customer service issue arises.
What's more, with image archival, insurers no longer have to manually file piles of stubs.
The move to electronic payments clearing also streamlines deposit processes and potentially lowers bank fees. To start, aggregating clearing channels creates deposits for various output types (e.g., ACH, image exchange, substitute check, wire transfer, etc.) utilizing one or multiple depository financial institutions, regardless of location. Least cost routing/best fit clearing logic automatically determines the most cost effective and timely clearing channel, as well as the depository institution.
By aggregating payments for clearing, insurers can negotiate favorable relationships with select financial institutions and determine how to best utilize these relationships in creating the outgoing deposit files for their work. An aggregate deposit channel offers the freedom to send ACH files to financial institutions based on the paying bank. This allows an insurer to negotiate for same-day availability of ACH items and expedite any returns. Or, based on payment volumes and diversity, insurers can simplify ACH deposits by sending a single file with all ACH types (WEB, ARC, etc.) to a single financial institution for reduced cost per item. The same strategy also applies to checks that are deposited electronically (using Check 21). The combination of faster payment processing, clearing and posting can improve collections by an eye-popping 20 percent for insurance companies.
No Time Like The Present
Though not every legacy remittance system needs a complete overhaul, the harsh reality for insurers is that all remittance operations must at least support electronic payments and clearing alternatives, if the organization expects its back-office to remain efficient, effective and competitive. The federal government's electronic payments mandate underscores this point. That's why an increasing number of insurers are implementing image-enabled solutions for remittance processing, remote deposit capture, check image exchange/image cash letters, and various ACH Standard Entry Class Codes.
On the remote deposit capture front, the charge is being led by brokerage and consumer/agent-driven insurance companies who have a large footprint of locations (such as thousands of independent agents), numerous depository accounts for agents, and agents who collect more than premium payments (e.g., retirement contributions). For these companies, remote capture is delivering efficient electronic processes and centralized business practices with the ability to speed funds availability. Insurers are benefiting from electronic payments in their back-offices, too.
The time for insurance companies to act is now. Processing a dwindling number of paper checks, while trying to support multiple payment platforms, will only become more expensive over time.
Insurers need an enterprise solution that provides a single platform for processing, clearing, posting and archiving all paper and electronic payment types. This approach provides significant operational improvements and cost savings, not to mention, a future-ready framework for transforming payments processing and enabling straight-through-processing (STP) of electronic or paper-based transactions.
Don't be tempted to wait until the federal government's electronic payments mandate kicks in. Deploying these technologies now could put an insurer steps ahead of the competition.
About the Author: A 15-year financial-services veteran, Mike Tallitsch is vice president of corporate solutions for WAUSAU Financial Systems, a provider of payment and receivables processing solutions. He can be reached at [email protected].