The Importance of Payments for Insurers with Bernhard Schneider of PWC

00:48 Oliver:

And now, you know, today, we promised our listeners, that, you know, some discussions around payments and insurance, and– but before we get to payments, you know, the insurance industry itself is facing a lot of challenges. And you– I think you have quite a lot of insight into that. Anything you can share that you think our listeners will find interesting?

01:06 Bernhard: 

Yeah, thanks for the question, Oliver. And I think looking at the insurance industry globally, right, but also in Switzerland, specifically, I think we’re looking at a couple of challenges that drive in the insurance business really today.

Many of them are facing challenges through inflation, pressure, right on their costs. And they need to look into creating efficiencies, automating processes as just being one– one of several examples. They’re also looking at, you know, tighter regulation, you know, not only coming from Europe, but also in Switzerland, that need to be dealt with.

And, you know, probably one of the most key challenges they’re looking at is a change in customer demand. Like we all know that insurance products are still distributed heavily on– with the face-to-face distribution. But other options of how insurance is really sold to customers is changing. And also customers are demanding really additional and different ways of engaging with their insurance companies.

02:20 Oliver: 

And it’s very clear like these– these seem to be very common themes for insurers, like as you see like them in Switzerland and in Europe, but they seem to be global in nature, right? So everybody is faced with this massive pressure to reduce costs and compliance. I mean, you know, any insurer is very aware around compliance, and not wanting any breaches or any regulator in the house.

And just like how relentlessly other industries are really changing customer behavior, customer expectations, and the industry’s race, I guess, to try and stay up to date with that. And and I think, you know, some, some insurers are more successful in this than others.

And, you know, it’d be interesting also to hear like, how do you think insurers are doing in that way? And whether they’re, you know, understanding what levers they actually have to pull to try and, you know, succeed in that space?

03:14 Bernhard:

You know, I think it’s, it’s critical to understand that customer centricity and the changing customer demand is not a new theme.

I think it’s driven by, you know, not only COVID, but also now, externalities, like inflation and other things where customers are increasingly looking to– how do I engage , what’s the price I actually have to pay, because they are feeling it in specially in Europe, right, really, in their day to day pockets, and insurance premiums are making up quite a bit of their overall share of wallet, right? And payments, they can actually have money they can actually spend.

So they are not only in the classical, you know, retail, like motor or household insurance space, are increasingly price sensitive. And hence, there is, you know, besides the fact of the inflation on the insurance side, there is the increasing pressure of, you know, getting costs down, but also think about how to engage customers in the way they want to be engaged and do that in a very efficient way. And I think technology has come a long way, and is now you know, being able to really enable and support that.

04:34 Oliver:

And, and it’s exactly, you know, as we think about as an insurer approaches this topic, that you know, as they try to approach it from an end-to-end perspective, right, so they, that’s where you maximize the savings for carriers like to make the right changes across the business. And there are very few topics that really, you know, allow you to make a lot of like, tackle as one topic and really address multiple areas of the business, and, as we have seen payments is one such topic, right?

So it is, it is actually, surprisingly, in so many areas of the business, we see the topic of payments sort of emerge, right, and it’s a very key part of the end-to-end experience of a customer or even an insurer providing a product.

05:19 Bernhard: 

Absolutely. And I fully agree as payments, what we see, you know, in the markets and talking to insurance companies, what we see is that payments as an opportunity to actually on the one hand, you know, create much more efficient processes.

And on the other hand, also serving customer needs in a different way, creating, you know, loyalty to the insurance companies. Payments is actually one key element to look at. And what we see is that it’s heavily overlooked, and also the potential that it can really have within the whole organization is not yet seen by the insurance companies.

06:06 Oliver: 

And what do you think that comes down to, right? So why is it that I mean, that’s so– you know, lacks this kind of insight to understanding in an organization around like, everything that a business can do?

06:20 Bernhard: 

Well, I think payments, you know, is typically, within the finance function, right? Something you just need to make– to make work. And, but if we look at it in a bit of broader sense, if you think about insurance, you know, 60% of their overall costs are claims payments. Now, you know, what that means in terms of the number of transactions, there is always, you know, an operational efficiency element into it.

But there’s also a customer element of how you actually engage the customer in these very important situations, right? And the point is that nowadays customers are, you know, just– the claims are just paid out to the customer in– in paying money.

But if you think about it in a bit more an innovative way, there are many more ways you could probably pay a claim, right? So we look at different options, how you could actually serve the customer needs, because the actual need in a claims event is not necessarily the monetary payment, but it’s probably, for example, the replacement of the good that has been broken, just as one– to name one example.

07:40 Oliver: 

And I know we’ve had obviously some of these conversations already, and even worked on several use cases with customers, but it’s actually quite interesting to see and to highlight to carriers, how much the payments end-to-end process can actually help the organization on many fronts of its business, right? You alluded to it like with a finance, hey, there’s some people have to make the flow of money work, I choose the bank, and that’s it, right? So I’ve done my job.

But then you get to the customer side? Well, it depends on the situation the customer is in, how he would like his payment. Now clearly, if you have a million euro, million dollar life claim, you’re not going to push that to a credit card.

But clearly when you get into the P&C side and, and device replacement, right, as is how do you not only make that money available in a more convenient way, like push-to-credit card where customers use the card to buy the device, right that we more of a convenience around replacement, but also get into everything from value creation, right?

So I remember, we spoke about, hey, you know, I can actually give you a voucher at this place. So instead of paying out 500 euros or francs or dollars for it, you– I can give you 520.

Because actually, I can buy that at a discount, and now I can drive off– maybe it cost me 490 to get that 520 voucher, right? So I can reduce my claim costs, get more money to the client.

And the other one I found really interesting was you can use things like virtual credit cards, where you can limit where they can spend the money.

So you can address some fraud aspects to it, right? So you can, the insurance can increase the amount they automatically approve. Because it is risk– It’s locked. So merchant-locked. So you know, they cannot go spend the money in a clothing store or something like that.

And I think it’s something that you often speak about, and you alluded to, like, insurance are not yet aware, of all the things you can do with payments and all the aspects that it touches in an organization. And, you know, I would love to hear about like other areas you think like, it really affects, like, oh, opportunities you can extract, for example, more value from payments.

09:49 Bernhard: 

Yeah, that’s– actually the example you alluded to is a great one. I think, in addition to that, right, is– if you look at payment You could also think about totally different customer journeys, it’s becoming increasingly important where insurers are now, you know, start working more and more, you know, with partners that are, you know, as– that are part of an overall customer journey and part of a claims process just to name– to take that example again.

So there it is important, you know, to be able to actually, you know, get this– this value out to the customer and speak much more to the actual need of the customer in such a situation, rather than just following the pure bank payment.

And for that, right, it’s interesting to look at payments, really, throughout the whole organization, including, you know, distribution channels, when we talk– when we also think about agents and brokers dealing with the customers, getting more options to actually serve their customer, or, you know, from a regulatory fraud perspective, you just mentioned it, right.

So there are many, many areas of the actual operating model internally, but then also working with external partners that are becoming increasingly important, and payments are– is playing a critical role in that. So, I think looking at what we call the total cost of ownership, you know, of– of a payment, it’s necessary to actually assess not only the cost per transaction you can get down to, but also the added value you can put out to your end customer.

11:47 Oliver:

And I guess to give the listeners a bit of a flavor, again, I guess we were looking at this with some of the insurance, like, if you work like a use case backwards, I think as– you know, it’d be good to give the listener a flavor for how this like cost accumulates, to say like, hey, let’s take something like a, like a parametric insurance example. Right?

So you have insurance that– should something happened to you, let’s say a hurricane or something happens to your house, like an earthquake, or some weather damage, that –whatever happens is if you’re in within a certain distance, you get paid 10,000, right? So you can go set yourself up in a hotel somewhere, you can look after your family.

This is not for repairing your house, this is to sort yourself out, situationally. It really depends on your situation, what you need, like, do you have your wallet with you? Right, because if you don’t, any kind of push-to-credit card really isn’t gonna help because you don’t have your card. So you probably have to think about issuing a virtual card, you know, offering to pay bank transfer, like if you don’t have access to any ATMs, how you’re going to make– get access to any money?

So the point is at the back you have all these partners that you spoke about, like these providers, that offer all these different payment types; You need a bank, you need a PSP, you need a voucher provider, you need to send– push-to-card. So we do– that’s virtual cards, right? So now the accumulates, the providers you need.

And as we know, for insurers, that means integrations, now you have to manage that. You have to build all the finance processes, you have to build IT support, you have to build reporting, you have to build all the extra process around payments. Card is different to virtual card is different to voucher, now you need expertise, right to build this? And suddenly, if you add all of that up the costs to an insurer, you know, quickly reaches into the 100s of 1000s for projects.

And as we know, you know, carriers tend to not be able to turn this around in a day or two, it also takes a while. So this total cost of ownership, whereas traditionally, people thought of it like as the cost per transaction, they might say all these transaction costs me 20,000 to do. But once you calculate all the finance people you need IT people the work you do, you might end up at like 700,000 to 800,000 in no time.

And that fundamentally changes the business case. And can often often, you know, blow the business case out the water and and insurance decided not to do that right? And I think this is where we often see like, understanding that– like how it affects finance, IT operations, supports, call centers, like who– where does the information go, claims, how do they answer that?

And it’s what I think we spoke about earlier, it’s not even fully centralized within the organization and fully understood. But those business cases are big in the impact in sorting out, business integration topics, either through, you know, third -arty solutions or better processes can actually make a big impact on the business in terms of cost reductions. I mean, just just to give some– some examples.

14:47 Bernhard:

That– that’s absolutely true. And I fully agree to that. And you could go from my perspective even beyond that, because what you described is now from a cost perspective, right? What I also like, like to emphasize is that, with that change, when you bring this all together and integrate it, you know, look at it in a much more integrated way.

You could also say, this has, you know, indirect, or maybe even direct effects on things like customer satisfaction, customer loyalty, when you’re be– when you’re able, as an insurance company, you know, to serve those customers in that way, in a different way that you actually, you know, do what they actually need. So if you give them, you know, the opportunity to be protected, rather than getting something paid, you know, and but you don’t have your wallet, it doesn’t really serve your needs, right?

So there is an additional effect, which makes the business case from my perspective, even even more attractive. When you look at the ones from the cost side, but then also to the additional opportunity, which is then more top-line driven, in terms of, you know, additional revenues, through customer loyalty, and customer satisfaction.

16:09 Oliver:

And I feel like, you know, automation, you know, there will be use cases there on the automation side, right. So, there’s cost reduction, and automation is one way to get it. But automation seems like a good place, right? To get some value?

16:24 Bernhard: 

Absolutely, absolutely. And, and I think automation is something where, you know, many, many insurance companies are looking into, because they know, they’re not looking –typically not looking at processes end-to-end, but working still, you know, in a very silo-oriented way.

So automation of processes is something where, you know, technology can– can clearly help to foster that. And that’s one of the key drivers to actually bring your operational cost down.

16:59 Oliver: 

One of the use cases there I’ve seen, which I thought was quite cool is– is to be like, Okay, so, you know, traditionally we think of payments as collections, and then there’s payments as payouts, right? So these are two different kinds of worlds, even probably operationally within an insurer. But now, the use cases like if– in and out is in the same place, you can start linking them.

So we, we see one of the clients, they have like, okay, I collect premiums, so I can see all the premiums that are collected. And off the back of that I can generate the commission payout schedules to my brokers and agents, right? So I know this premium is linked to that commission payment. The automation then obviously comes in in the first level, I collect premium, and I pay commission for premiums that have been collected.

And they are linked from a reporting perspective, but then also interestingly, if a policy gets cancelled, and you have to do commission clawback, you can do that automate. You know, this premium was cancelled, I paid this commission for this premium and I can trigger a collection process from somebody else, or often nett it off against the next payment, right?

And I think this unlocks, you know, getting payments, right, understanding payments end-to-end, and having that sort of seamlessly connected unlocks really cool use cases. And– and for me, that’s probably like, in the gray zone between like automation and new products, right? So new products– new customer journey is something you’ve touched on, that, I think is also something insurers are really pushing on. Right?

18:27 Bernhard: 

Yes, and it makes things you know, a lot easier, as you know, you could communicate in a totally different way. And I mentioned, you know, the change in customer demand. If you look at, you know, the big tech companies today, that are really mastering customer journeys and communication, that’s something customers are also then you know, expecting from– from others they are engaging with, and that could be the insurance company, right?

So if you would be in a situation to say, hey, no worries, we deal with that; we automatically, you know, pay it back, or we draw it back from your account, etc, and the customer doesn’t even need to deal with it, need to think about it, it’s just done automatically, let’s call it? Right?

But that makes life of customers much more easier. And internally, you know, reduces also the amount of time you need to spend to talk to the customer, you know, make sure he pays it proactively back to you, etc. So it also saves a lot of time, which may not include it yet, you know, in the overall cost– cost perspective.

19:41 Oliver: 

Yeah. And as we talk about like customer journeys, that brings to mind that other use case we saw was like in the travel insurance where you know, like you go to another country, you’re well insured at home, and then something happens to you and then you have to go to a hospital there and then often they’re like, okay, you have to pay like a deposit or something.

You know, like imagine like, this person traveling to the US and then having to go to hospital, then you have sometimes have to pay like a $50,000 deposit or something, right, that medical system doesn’t know you. And you know, not many people have $50,000, free on the credit card.

And so here we saw like the use case where the insurer actually issues like a virtual credit card that they’ve basically owned and funded with big limits, but they merchant-lock it to hospitals and hotels and taxis. They give it to you so that you can then go to the hospital, get treated, right, so you don’t have to fund that with your personal card.

But you can only spend it at a hospital, you can spend it at a taxi to get hotel and to get a hotel room, right? And then they can see the real time emergence of the costs, and settle them and have access to the data. So I think there’s definitely exciting things to happen, like– that you can do with payments.

But that brings me to one of the sort of the key closing points really is, and this is something you and I and we as you know, with Duck Creek Payments, and PwC get involved in quite a lot, you know, a lot of carriers out there are just not experts in payments, right?

So unlocking this, even within the organization, and knowing what’s possible out there is– is sometimes very limited there. And you know, your experience, you know, helping insurers through it, like what can others who have these questions do, like reach out and expect from an engagement or know look for partners who can help them through this?

21:23 Bernhard: 

Yes, and I think the you know, the interesting thing is also creating awareness of what you could actually do if you think about payments differently, right? Because it– actually from, from our perspective provides value to the overall organization, rather than, you know, just being a function within, you know, the CFO area.

But it’s– it’s changing completely the way you look at payments internally. And you can look at it, you know, from an innovations angle, right? When you think about payments differently, how to serve customers, as they want to be served really to their needs?

Plus, you can think about it from an operational cost angle, of course, yeah, to really follow the challenges of getting the operational costs down by you know, thinking about payments differently, including technologies that– that look at payments in a much more integrated way.

Bringing– bringing together you know, many areas depending on the use case of actually your– your overall value chain. And that connects really the dots from the end customer through the intermediary into your, you know, organization, where it’s actually, you know, surprising and exciting.

You know, what payments, what you could actually do with payments, and I still believe this is– we need to work much more on creating this awareness in the market, of what could be done by thinking about payments in a different way.

23:06 Oliver:

And I guess that’s why I’m so excited about that white paper we put together. So for those listeners who want to see it, like there’s the link in the session notes, and the link to that, and it really helps, you know, people out there, navigate the topics and see how the total cost of ownership builds up in an organization with some cool use cases.

And I think that could really help people along and at this point, we’ll also offer to people hey, if you have questions around payments, payments’ use cases, payments total cost of ownership and insurance, now for feel free to reach out to you know, the folks at PwC, you know, Bern and his team would love to support and also the Duck Creek Payments guys.

And, you know, plugging sort of a little bit like that’s why I’m also excited to take this like a solution for this into the US right?

So we do this with European sort of insurance and Australasia. And now with Duck Creek Payments being live in the US I think that’s really quite an exciting time for us here as well. But Hey, Bern, thank you so much. And thank you all for listening today. Any kind of closing words Bernhard?

24:07 Bernhard:

No, I think it’s an a really exciting topic. And thanks a lot for having me Oliver, in the podcast. So I’m really excited, you know, on further– further conversations and as you’ve just mentioned, everybody who was– was interested in the topic please, please reach out to Oliver or myself, we are happy to have a conversation.

24:27 Oliver: 

Perfect. So, here for the listeners, Duck Creek Payments is also now available in the US, you know, by providing a single connection to the entire payments ecosystem. Duck Creek Payments allows insurers to maximize the business value from payments with minimal heavy lifting, massively reduced costs and full compliance.

You can also learn more about Duck Creek Payments by visiting the link or visiting the PwC landing page. The links will be in the session notes.

And hey, if you enjoyed this podcast, be sure to check out all the other episodes that we have on follow the and sort of Conversations on the Creek on Apple podcasts, Spotify and on the Duck Creek website. I’m Oliver Werneyer, thank you Bernhard, and we’ll see you all at the next episode.