With more contemporary policy admin and claims systems going into production, insurance providers are turning their attention to billing as the next logical step in their digital transformations. After all, writing new business is hard, so keeping customers on the books—even the more challenging ones—is an important goal. One way to do it is through configurable “smart collection plans,” which can protect the customer experience for those challenging accounts, but with an eye toward preserving profitability.
With policy administration, insurers focus on writing the right liabilities for the right market in the safest and most-efficient way. With claims, it’s largely about expense control. But billing is the lynchpin–it’s where the revenue is generated.
In short, the trick is to efficiently collect the greatest amount of bad debt at the lowest amount of additional expense. That requires technology that can recognize patterns, segment customers, and apply the appropriate resources during the collection process. Perhaps most important, though, is empowering knowledgeable business people to appropriately override those decisions, and then customize and execute individual plans quickly, rather than waiting for programmers to code them.
Billing: Segmentation and Configurable Smart Collection Plans
When we assume a debt, we’re giving our word that we’re going to make good on what we owe. Our lender sends us monthly reminders, and the ideal is that we keep our word and pay as promised. That’s the happy path: insurers send the bill, customers pay it, and that routine happens every month.
The reality is that things don’t always go smoothly. Some debt goes bad. Further complicating the issue is that there are qualitative differences in bad debt. The ability to configure a billing system to accommodate those differences is important because debts have different values, costs, and levels of potential profitability associated with them.
For example, customers in some target markets, like non-standard auto, are statistically more likely to have trouble managing their cash flow. Plus, as a group, they show less customer loyalty and may need some encouragement to pay and stay. Up to a point, that’s to be expected. The reality is that the cost to acquire a new customer is eight times greater than to keep an existing customer, so it makes sense that an insurer will go to some effort to retain those customers before cutting them loose, up to and including reporting delinquencies on credit reports and engaging collection agencies.
Now consider large commercial specialty products, a market in which the payment behavior typically is much closer to that happy path. If a large commercial customer doesn’t pay, it’s likely an indication that there’s an administrative issue, not that they have no intention of paying. Plus, these folks are paying multi-million-dollar premiums, so you definitely don’t want to scare them off.
Those are two extreme ends of the spectrum, but in either case, you want to distinguish customers who may need an extra push to make their payment from those who have no intention of making it. That’s where your follow-up rules come in. There’s a prescriptive set of next steps. They get a reminder; you give them the legally-required minimum amount of time to pay. If they do pay, you may also have to collect a qualified amount to get them back to an active status, etc.
But if they still don’t pay, what’s the process you’re going to use to collect any earned premium? Is it a series of letters? Is it a referral to an external collection agency? For lower margin accounts, your response needs to be really crisp, so you’re not spending good money after bad, and that means automation.
In the case of the large commercial specialty, which has a higher premium and built-in margin, less automation and more personalization are necessary, even if the follow-up plan is as simple as having a billing specialist call them to say: “We noticed that your payment didn’t come in. That’s unusual for you. Is there anything I can do for you?” The ability to respond to what happens next and customize the ensuing sequence of events may be the difference between keeping that customer and losing that business.
Informed Decisions, Good Relationships, and a Human Touch
In both examples, under the covers, the technology is calculating amounts, dates, and numbers of days, to produce a quantitative decision about how events should unfold. But qualitative and human input can and should be used to accelerate resolutions in certain cases.
For example, based on that call with the commercial account, it may – or may not — make sense to immediately initiate an extra process to chase the bad debt as part of a legal collections process. Getting that right is incredibly important for all the obvious reasons, not the least of which is giving them an opportunity to pay and stay.
Managing challenging debt collection is not only about relative profitability. It’s about real profitability, expressed as an increasing amount of revenue. But the difference between collections and smart collections is measured in terms of collection rate and customer satisfaction, plus it can increase profitability without having to grow your book of business.
