Insurance companies today are at the intersection of embracing electronic payment processing (EPP) for claims or staying with their traditional check payment methods. While many industries have adopted EPP, some 80% of insurers still rely on the traditional method despite the fact that electronic payments vastly increase speed to settlement and save insurers the costs associated with manual processing of paper checks.
Electronic payment processing broadly refers to making and settling payments for goods or services via electronic means, e.g., credit cards, automatic clearinghouse (ACH) or electronic funds transfers. Under the EPP program, an account is generated by an issuing bank of credit—the EPP provider—that then extends credit to the insurer at a defined level. Once the insurer begins paying claims through the single-use account solution, the aggregate credit limits of each individual single-use account would then hit against the credit agreement. The account is charged through a national credit card network and settled in only one to two days.
The EPP Process
Implementation is fairly straightforward. It lasts about eight to 10 weeks and, in many ways, can be the easiest part of the process. For best results, key stakeholders need to be involved early in the setup process. To fully maximize the benefits of the program, training and rollout planning that include the insurer's claims payment specialists are critical. Required training should cover any process changes related to the claims specialist's role. This would include new methods for researching payment details and disputes as well as new, simplified means for accounting of payments made.
Since the EPP solution integrates with existing claims management software, current processes, such as claims administration and audits, can remain intact. Processors and other authorized managers simply send the claim through the insurer's own software program. The EPP platform, in turn, extends the functionality of existing systems by allowing reporting and tracking of claims settlements.
Claims processing software can be enabled to communicate with the EPP provider's online system through the Internet. Users simply submit additional information in the client-defined fields along with the transaction amount. The EPP provider then gives the user a credit card (e.g., MasterCard) account number for the exact amount of the transaction. The vendor draws on this limited-line account for payment, just as if the insured had paid with his own credit card. After processing, the account number is closed permanently. The proprietary system appends the additional information submitted by users to the "posted" transaction, which significantly improves the accounting reconciliation process.
Preventing Fraud and Abuse
"Single-use" virtual accounts replace check payment systems and help to significantly minimize the risk of fraud by reducing the amount of time that an account is open. The virtual accounts are used once—for a single transaction—with an account number that is generated instantly and stays open for only a certain number of days. The credit limit is set for the amount of the purchase, which prevents overcharges and abuse. In regard to multiple vendors being paid, since each single-use account is used for exactly one transaction, creating multiple payments is simple and easily reconciled. These comprehensive purchase controls help to prevent fraud and misuse.
A recent study from Channel Harvest showed that agencies place a great deal of importance on the speed and accuracy of payment with their agent-carrier relationships. With this process, the payment time is shortened by up to seven days, and each claims transaction time is reduced by up to 2.5 minutes, thereby freeing up adjusters' time.
For example, Automobile Protection Corporation (APCO) says it was able to cut average claim payment time by 50% and speed of delivery by an average of four days using EPP. APCO also reduced fraud and disputes to nearly 0% through the EPP program. Other benefits included an immediate increase in control and security and more accurate reporting.
By accelerating claimant payments through EPP, insurers can expedite the vehicle repair process, minimizing rental car fees and client inconvenience. So why are so many insurance companies still using the traditional check payment method? Many insurance companies see a delayed claim payment as an interest-free loan, which can be a major profit generator. What they do not realize is that electronic payment processing reduces vendor payment time without reducing float time, meaning insurance companies still get the benefits of an "interest-free loan" while satisfying the vendor with speedy payments. It is becoming standard within the goods/service industry to accept credit cards as payment for transactions of almost any size, so your merchant network will surely support this payment program. Moreover, you will no longer be asked to set up a new supplier for just one transaction.
Look for an EPP provider with no upfront software fees for implementation or any ongoing fees. If your company is interested in becoming more environmentally friendly, EPP has the additional benefit of reducing paper use and waste.
Jim Pratt is vice president, Corporate Payment Solutions, at Wright Express Corporation, parent of one of the top nine issuing banks for corporate purchasing card programs in the U.S.