Presentation on theme: "Insurance Payments Transformation Aaron Schneider, VP, Bank of America Merchant Services October 23, 2007."— Presentation transcript:
Insurance Payments Transformation Aaron Schneider, VP, Bank of America Merchant Services October 23, 2007
2 Agenda Introduction Credit Card Players, Debit Card Players Costs of Credit Card, Debit Card Acceptance PIN-less Debit, What is it?, Costs Current Landscape Benefits Payment Methods Growth Opportunities Merchant Marketing Technology/Implementation Options Questions/Comments
3 Introduction Major trends in billing and payment technology in the insurance industry: – Increase in electronic presentment and payment – Increase in credit card payment – Decrease in check payments Payment card growth is slowing in the most mature bill payments segments telecommunications and cable/satellite/ISPs while growth remains healthy in the insurance and utility segments.
4 Credit Card Players Visa and MasterCard Issuers – Includes Citibank, Wells Fargo, Wachovia, Bank of America, Chase, Suntrust, PNC, and hundreds of others Visa and MasterCard Acquirers (Processors) – Includes Chase, Bank of America, First Data, Fifth Third, and many others – Independent Sales Organizations (ISOs) Third-Party Technology Vendors – Includes Bill Matrix, Fort Knox, Speedpay, Kubra, CyberSource, Various Bank Technologies, and many others American Express and Discover (act as issuer and acquirer)
5 For a typical credit card transaction, the Interchange fee represents over 90% of the total cost of card acceptance. Visa and MasterCard have created more than 152 different Interchange levels, although only a few typically apply to insurance companies. Interchange qualification represents a significant cost to all insurance companies. Costs of Card Acceptance 90% to 93% Interchange Cost 5% Visa and MasterCard Associations 2% to 5% Merchant Processor
6 Costs of Card Acceptance Visa Interchange fees (paid to issuing banks) for insurance companies are: 1.43% + $.05 for credit or.80% + $.25 for debit/check card + Visa assessment fees of.0925% (paid to Visa) + Acquirer fees of X (negotiable depending on volume) ____________________________________________________ = Total Cost of Acceptance Example Cost Calculation $100 Insurance Premium= $1.48 in Interchange fees (paid to issuing bank) + $.09 paid to Visa + $.08 paid to acquiring bank processor $1.66 in total cost (1.66% effective rate)
7 Costs of Card Acceptance MasterCard Interchange fees (paid to issuing banks) for insurance companies are: Credit (card not present consumer non-rewards rate) is 1.89% + $.10 or.80% + $.25 for debit/check card + MasterCard assessment fees of.095% (paid to MasterCard) + Acquirer fees of X (negotiable depending on volume) ______________________________________________________ = Total Cost of Acceptance Example Cost Calculation $100 Insurance Premium= $1.89 in Interchange fees (paid to issuing bank) + $.09 paid to MasterCard + $.08 paid to acquiring bank processor $2.06 in total cost (2.06% effective rate)
8 Costs of Card Acceptance Interchange and assessment fees for other industries: Mail Order/Phone Order Merchant = Visa Consumer Card (non-rewards) Interchange of 1.85% + $.10 Consumer Utility = $.75 Interchange flat fee for Visa and MasterCard Supermarket = Credit Visa Interchange of 1.24% + $.05 Petroleum = Debit MasterCard Interchange of.70% + $.17 Large Ticket B2B ($7500 +) = Visa Interchange of.95% + $35 Example Cost Calculation for $10,000 Visa Insurance Premium Payment from Level 3 Corporate Card Customer $10,000 Insurance Premium= $130.00 in Interchange fees (paid to issuing bank) + $ 6.93 paid to Visa + $ 10.00 paid to acquiring bank processor $146.93 in total cost (1.46% effective rate)
9 PIN-less Debit Allows ATM/Debit cardholders to pay bills at bill payment merchant – Web site – Voice response unit (VRU), – Live customer service representative or call center – Recurring payment Transactions are processed online, in real time Transactions limited to biller categories that fit a specific low-risk model (utilities, insurance, telecom, financial institutions) Bill payment merchant assumes the transaction liability and is responsible for authenticating cardholder at time the transaction is initiated Source: First Data ® : Real-time Debit Alternative Payments STAR® PIN-Secure & STAR® Bill Payment
10 PIN-less Debit Insurance is a core category for the STAR Bill Payment Service. Nearly 15% of total transaction volume comes from insurers. – 558 billers – 89 new in 2007 – 78 insurers Approval rate for STAR Bill Payment is 90%. Research shows that when asked what type of card they would prefer to use to make a bill payment, consumers selected debit cards over credit cards by nearly a 5-to-2 ratio. * More than one-third of consumers say that they would pay more bills electronically if they could use their debit cards. * * 2007 Consumer Payments Preferences and Usage Study ; Phoenix Marketing International / ESP Payments Practice Source: First Data ® : Real-time Debit Alternative Payments STAR® PIN-Secure & STAR® Bill Payment
11 PIN-less Debit (Bill Pay Debit) STAR, NYCE, and PULSE Debit Networks have approved insurance companies to accept PIN-less debit transactions.65% + $.175 = capped at $.62 + processor/third-party vendor fees Sample Effective cost of a $500 premium= $.62 + $.25= $.87 This equals effective rate of.17% Litigation currently exists regarding PIN-less debit patents. Litigation may be resolved in next 12 months. ATM/debit transactions increased about 23% between 2005 and 2006 * One third-party vendor insurance client saw a 224% growth in PIN-less ATM debit transactions from May 2005 (15%) to July 2006 (33.6%) * Source: ATM&Debit News EFT Data Book September 2006
12 Current Landscape Bill payment volume is a sizeable opportunity with volume concentrated in insurance, utilities and telecommunications Insurance Utilities Telecom Property Management Cable/Satellite/ISP Other 34% 20% 11% Other 12% Property Management 9% Insurance Telecom Utilities Life/P&C Insurance Consumer Bill Pay Sales Volume* $953 billion (CY05) Business Bill Pay Sales Volume* $419 billion (CY05) Source: Visa U.S.A. PIC Analysis * Represents bill payment portion of segment volume only; totals may not sum due to rounding. 5% 8% 36% 28%
13 Current Landscape (e-Commerce) Personal Insurance Can policyholders send payments via Web site? – Yes – 100% Payment methods customers can set up from Web site. – Single payment credit card – 20% – Recurring credit card – 10% – Single payment EFT – 25% – Recurring EFT – 15% – Recurring debit card – 10% Electronic bill presentment for customers? – Yes – 40% – No – 60% Electronic bill presentment for agents? – Yes – 40% – No – 60% Commercial Insurance Can policyholders send payments via Web site? – Yes – 47% – No – 53% Payment methods customers can set up from Web site. – Single payment credit card – 17% – Recurring credit card – 10% – Single payment EFT – 24% – Recurring EFT – 17% – Single payment debit card – 17% – Recurring debit card – 10% – Monthly pay plan only – 3% Electronic bill presentment for customers? – Yes – 24% – No – 76% Electronic bill presentment for agents? – Yes – 30% – No – 70% Source: ICE survey
14 Current Landscape (Payment Plans and Fees) Personal Insurance Methods of charging credit card fees – Do not offer credit card payments – 10% – Do not charge fees on credit card payments – 20% – Charge standard installment fee – 60% – Discount standard installment fees – 0% – Charge more than standard installment fee – 10% Amount charged for electronic payments made via Web site – No charge – 62.5% – $0.01 to $3.00 – 12.5% – $3.01 to $5.00 – 12.5% – $5.01 to $8.00 – 12.5% Amount charged for payments via phone – No charge – 62.5% – $0.01 to $3.00 – 12.5% – $3.01 to $5.00 – 12.5% – $5.01 to $8.00 – 12.5% Commercial Insurance Methods of charging credit card fees – Do not offer credit card payments – 44% – Do not charge fees on credit card payments – 11% – Charge standard installment fee – 39% – Discount standard installment fees – 0% – Charge more than standard installment fee – 6% Amount charged for electronic payments made via Web site – Does not offer electronic payments – 33% – No charge – 55.5.% – $3.01 to $5.00 – 5.56% – $5.01 to $8.00 – 5.56% Amount charged for payments via phone – Does not offer payments via phone – 39% – No charge – 50% – $3.01 to $5.00 – 5.5% – $5.01 to $8.00 – 5.5% Source: ICE survey
15 Current Landscape Online bill payments accounted for 39% of bill payments among online households in 2006, an increase of 4% from 2005. Volume of checks sent by mail fell 4%, accounting for only 34% of the volume of payments. Consumers paying at least one bill online per month rose to 74%, compared to 69% in the previous survey. Consumer adoption of online bill payment has more than doubled since January 2002, when 37% of online households reported paying at least one bill online. Half of property/casualty insurers are currently offering electronic bill presentment and payment to their policyholders, and nearly half have it for their agents. Source: The 2007 Consumer Bill Payment Survey, a study by Harris Interactive Inc. and The Marketing Workshop Inc. Source: 2006 Celent report, Billing: Business and IT Issues for P/C Insurers.
16 Benefits of electronic payments Benefits to insurance companies: Improves cash flow and increases profits Timely payment Streamlines payment processing Reduces handling costs and losses Reduces risk of losses from bad checks Improved customer service and consumer perception Labor and operational efficiency Consolidate and automate electronic deposits to your accounts Decrease lapse rates
17 Benefits Benefits to your customers: Choose from multiple methods of payment Take comfort in knowing payments are fast, reliable and secure Rewards (frequent flier miles, cash back, ease of accounting) Addresses most consumer security concerns Speeds up time to statement
18 Payment Methods Cardholders demonstrate a desire to pay through various channels, indicating opportunity in both the biller direct and consolidator models Example of biller direct is a merchant who allows payment directly on the merchants Web site Example of consolidator is a third-party vendor who accepts the payment on behalf of the merchant Advantages of consolidator include ease of implementation, speed of implementation, less compliance liability Disadvantages of consolidator include loss of control
19 Payment Methods 75% Pay by biller-direct* 24% Use all three methods 82% Send checks via mail 35% 12% While card acceptance has grown, most Visa cardholders use multiple methods to pay bills. Bill Payment Methods of Choice, 2006 Responsible for Household Bill Paying (n=308) * Pay directly to biller by payment card or EFT from checking or savings (online or by phone) Source: Visa U.S.A. Research Services, 2006
20 Growth Opportunities Statistics reported from a top 5 insurance company (based on revenues) Approximate % of overall payments (among all types of insurance) paid via credit card
21 Stats for Top Insurance Company Percentage of payments paid via credit cards in 2006 and 2007 for specific lines of insurance
22 Growth Opportunities In terms of credit card acceptance, this top 5 insurance company reported their credit card growth rates over the past three years are as follows: – 2005: 29% growth – 2006: 30% growth – 2007: 13% growth (year-to-date)
27 Merchant Marketing Biller (merchant) marketing of Visa Bill Pay generated more than 180 million direct marketing impressions in the last year. Participating marketing partners within the insurance industry included Farmers Insurance and St. Paul Travelers Insurance. In the retail (non-bill payment) marketplace, there is minimal amount of growth potential for payments. Visa, MasterCard, American Express, Discover, STAR, NYCE, PULSE, and many of the major issuers are all focused on increasing the amount of bill payments paid via credit card, debit card. These companies are going to more aggressively market bill payment to consumers who are going to request bill payment capabilities from insurers. Marketing will include television, Web, statement inserts, magazine and other forms of media. Incentives are being increased to push consumers in this direction. What is the message to pass to your customer service agents who will be taking calls from customers that want to know, can I pay with my credit card?
28 Technology and Implementation Outlining needs – Which lines of insurance?, pricing concerns Accept payments face to face at agent office, mail order via lockbox, phone order via customer service rep or automated phone system (IVR), Web payments, Direct or Consolidator model? Convenience fees or no convenience fees? All customers or exception items? (marketing or no marketing?) Which payment types? ACH/E-Check Visa Consumer Transactions, Visa B2B-Level 2 and Level 3 MasterCard Consumer Transactions, MasterCard B2B-Level 2, 3 STAR, NYCE, PULSE American Express Consumer, American Express B2B Discover International Payment Types
29 Technology and Implementation Business to Business – Examples: Agent to Insurer, Corporation to Insurer Visa Level 2, Level 3, and Large Ticket Level 3 Mastercard Level 2, Level 3, and Large Ticket Level 3 International Payments – Consumers in many international markets prefer methods other than Visa/MC/Amex/Discover Example- France – Carte Bleue, Carte Vert Italy – Carta Si UK – Maestro, Solo, Electron Ireland – Laser Scandinavia – Dankort Germany – Bank Transfers, Direct Debit Asia – Bank Transfers (similar to wire transfer) There is no single source acquirer with a single platform that can process all domestic and international payments. Multiple acquirers would need to be chosen for many implementations involving both domestic and foreign processing.
30 Technology and Implementation Choose third-party vendor, bank vendor, or choose to code directly to a payment processor (proprietary or non proprietary concerns) Choose processor (acquirer) Establish connectivity (Internet API, frame relay) Test and certify connectivity Train users Go live Closely monitor fees and Interchange levels Stand-alone payment projects can take 4-6 weeks to implement Fully integrated payment projects can take 2-6 months to implement