Instant payouts: how insurers can manage the risks

Vol 46: Issue 3 | September 2023

The option of instant payouts for insurance claims is proving to be a powerful drawcard in attracting and retaining customers, with an increasing number of digital-first insurers leading the way and promoting it as a point of difference. 

Advancements in technology, including automation, artificial intelligence and data analytics, mean insurers can now use technology to assess claims rapidly and accurately — thus eliminating the need for a lengthy review process, complex paperwork and an even longer wait for payment.

For consumers, there is a growing expectation that instant payments will be on offer for straightforward claims. For insurers, increased competition from emerging insurtechs underscores how crucial it is to get the digital claims experience right. 

How it works 

Arijit Chakraborty is managing director of Asia Pacific at Cover Genius, which partners with digital platforms, e-commerce marketplaces, travel companies and other businesses to embed insurance products directly into their user experiences. 

He says parametrics is a key component for accurately determining instant payments. 

“Consumers select insurance products at the point of purchase and Cover Genius utilises advanced data analytics and machine learning algorithms to calculate insurance premiums in real time,” he says. “Customers receive instant quotes based on their specific needs.”

To enable instant payments, predefined triggers are established, which are typically based on objective and measurable events such as natural disasters, flight delays or cancellations. Data sources such as weather monitoring services or travel databases are used to access accurate information related to these triggers. 

“This data allows us to determine if the triggering event has occurred,” says Chakraborty. “For example, in travel insurance, a trigger could be a flight delay exceeding a certain duration.

Since the parametric triggers are predefined and easily verifiable, the payment process can be expedited and customers receive instant payments directly using their preferred payment method, whether that is cash, credit or loyalty points with a provider.” 

Managing fraud 

While instant payments are growing in popularity, the concept can require a fundamental shift in thinking from insurers and relies on robust technology to help prevent fraud, notes Peter Klemt, CEO of travel insurer PassportCard, which offers instant payouts for some claims. 

“The reality is the technology is available to do this, but it requires more than just the technology. It requires … an understanding of data and sound predictive analytics to manage the triage processes that you want and need to offer instant payments,” says Klemt. 

“We have payment limits — and we’ll ask some specific questions to validate the claims and go through our fraud indicators. Algorithms and data analytics can analyse claim patterns, detect anomalies and assess the legitimacy of claims before initiating instant payments.” 

Similarly at Cover Genius, Chakraborty says a rigorous approach makes it easier to manage the risk of fraud. 

“Because we’ve got access to more data and advanced technology, we can pinpoint where the risks of fraud may be and develop methods to control that risk,” he says. 

Setting up for real-time payments 

Beyond fraud, capital risks are also a factor to consider, particularly during natural disasters that may impact a large number of customers at the same time. 

Insurers must maintain enough liquidity to settle a potential surge of instant payouts, which can reduce their working capital. 

The risk parameters built into parametric models can help predict the amount of required funds reasonably accurately, but insurers also need to make sure they have robust banking arrangements to facilitate greater-than-normal volumes of real-time transfers. 

“You need to have all the arrangements with payment providers and payment gateways to service countries across the world; it’s not as quick and easy as it sounds,” Klemt says. 

Errors in customer details such as bank information pose another challenge. What was meant to be an automated process might turn into a manual process due to incorrect data, causing delays and inefficiencies. 

Employing solutions like penny tests to verify bank account details and utilising address- and name-checking software during policy sign-up can help minimise these instances. 

Then, there are the service logistics. 

Being able to look after customers in real time, 24 hours a day, means the claims team needs to be accessible through various channels like video calls and live chat outside of the standard nine-to-five. 

This might require restructuring the team, ensuring that additional team members have the necessary clearances for instant payout approvals, plus thorough staff training so that everyone is capable and confident managing instant claims payouts and addressing any issues, when required to do so.  

Suited to straightforward claims 

Chakraborty and Klemt agree that instant payouts are best suited for insurance claims that involve smaller amounts and straightforward processes. 

Claims involving major losses, complex investigations or significant amounts may require more time for assessment and evaluation to ensure accuracy and prevent fraud. 

Some travel insurance is suited to instant payment. PassportCard, for example, offers it for the three most common types of claims: medical issues overseas, delayed luggage and stolen cash. 

“We’ve taken the most common claims and built a simple process to provide a positive customer experience,” says Klemt. “If your luggage is delayed or your wallet is stolen, we can provide instant funds while you are away to tide you over.” 

Similarly, predictive analytics can be used to estimate costs and provide instant payments to travellers for medical consultations or prescriptions, he says. “If you require a doctor while you are travelling, we can assess the average cost of a visit to a medical centre in the area and provide access to funds to pay for it and any necessary medicines via a card that can be used to pay the medical provider or pharmacy.” 

Health insurers on board 

Medical claims are also increasingly being settled via instant payments by health insurers.

In New Zealand, Southern Cross has its own bespoke web-based payment system, Easy-Claim, which lets members claim electronically at the time of treatment for eligible healthcare services such as physio, audiology, optometry, GP check-ups, podiatry and dental. 

“It is very popular with members and providers — nearly 40 per cent of all Southern Cross claims received are made through Easy-Claim,” says Anthony McPhail, chief operating officer, Southern Cross Health Society. 

“The service provides real-time confirmation of eligibility for cover and details of what Southern Cross’s contribution will be, with payment made direct to the practice. It is very efficient; 93 per cent of these claims are processed automatically.” 

To manage the risk of fraud, all providers need to be registered with their appropriate sector body, such as the Medical Council of New Zealand or the Dentistry Council, he adds. “Our reporting allows us to carry out retrospective audits of claims processed. Any anomalies in claiming can be picked up at this stage and investigated further if necessary.”

Three ways instant payouts benefit insurers 

1. Attract market share: Research shows that 87 per cent of policyholders say the claims experience directly impacts their decision to remain with an insurance provider. Offering an option of instant payout for a straightforward claim through a digital platform can put insurers ahead of the competition.

2. Retain customers: Insurers that don’t provide instant payouts will likely lose out to competitors who can, with 53 per cent of consumers reporting they are willing to switch insurance companies to receive claim payments instantly. That number soars to more than 80 per cent for millennial and gen Z policyholders.

3. Reduce costs: Moving to digital platforms can bring down costs across the value chain. Research shows automation can reduce the cost of a claims journey by as much as 30 per cent.

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