It costs an insurer up to $10 for each payment issued as a check. Besides the price of a stamp, this figure also takes into account behind the scenes costs, including customer care calls and stop payment fees, according to an Ernst & Young study commissioned by Bancorp.
To combat the expense of issuing checks, carriers are turning to debit cards. The use of debit cards as a form of payment in insurance claims continues to rise, according to John Barbella, senior vice president of Bancorp, located in Minnetonka, Minn. “We have signed agreements with three of the largest insurers in the country, so we do believe it is going to pick up dramatically over the next couple of years,” he told Claims Journal.
Debit cards offer many benefits to insurers. In workers’ compensation claims where recurring benefits are paid to a single claimant, a debit card can be reloaded repeatedly, ensuring timely payment and significant cost savings, Barbella said.
Payments in the form of standard checks can add unnecessary delay causing frustration and ill will, which can result in complaints to the insurer, Barbella said. Homeowner, automobile, liability, and catastrophe claims can all benefit from a system that replaces checks and drafts, providing immediate delivery of funds to policyholders for additional living expenses, property damage advances and similar reimbursements.
Barbella provided an example of what commonly happens during the payment process of a workers’ compensation claim. “Insurers in a workers comp environment … they have to determine whether the claimant is still eligible for payment or if they are still out of work, etc. Oftentimes that communication is late in coming so what they were finding is they would be cutting a check to someone whose claim had ended,” he said. “And either they would put a stop payment on the check or try to rescind it before it left the premises. There was a lot of running around and the worst thing was when the claimant got it and tried to cash it and there was a stop on the check. That resulted in a complaint coming back.”
The main benefit, according to Barbella, is the ability to control a claim payment in real time. “So, with a card, it gives them the ability to control it in that at the minute that they find out that yes, we need to send payment, they can load that card right then and there.”
Regardless of whether a payment is erratic or routine (workers’ compensation payments tend to be routine, while property claim payments tend to be erratic), debit cards can be loaded as needed, Barbella said. In addition, payments can be tracked easily.
According to Barbella, utilizing debit cards as a payment mechanism relieves insurers from having adjusters carry checks in the field, at the risk of getting lost or stolen.
Besides efficiency and savings, insurers can benefit from a program that integrates with already existing insurer payment platforms. “We can make these payments so much more efficient then they are today,” Barbella said.
Policyholders benefit, too.
Kathy McDonald, senior vice president for Assurant Specialty Property, said the primary advantage of a debit card over a check payment is that it allows the company to put needed cash in the hands of catastrophe victims much faster. “With a paper check, it sometimes can take 10 to 15 business days to process the check and for the bank then to release the funds. We can deliver a debit card in approximately three to five business days,” McDonald said. “Catastrophe victims typically have an immediate need for cash, to arrange for temporary housing or replace necessary items, such as clothing, that have been damaged or destroyed,” McDonald said. “The debit card option enables us to help our policyholders get their lives in order much quicker.”
In a recent session on managing a large fire scene loss at the Property Loss Research Bureau Large Loss Conference in Chicago, Ill., Michael Famiglietti, large loss team leader for the New England region for Liberty Mutual, said his company uses debit cards to provide immediate money to policyholders. The process is working well with an apparent upward trend in their use, in amounts ranging from $5,000 to $25,000.
Other insurers reportedly testing the debit card waters are State Farm, Nationwide and Liberty Mutual.
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