Friday, 03 July 2020

No one needs to be told that we are navigating uncertain times. Although the current unpredictability resulting from the coronavirus pandemic arose suddenly over the last three months, uncertainty around natural disasters has been increasing steadily for decades.

Data from NCEI presented by climate.gov show that the number and cost of billion-dollar natural disasters (weather and climate disasters where the overall damage costs reached or exceeded $1 billion) have increased dramatically over the past two decades. From 2000 to 2009, there were 59 billion-dollar disasters in the US, costing $510.3 billion. From 2010 to 2019, this increased to 119 billion-dollar disasters, costing $802.0 billion. Keep in mind these numbers only count disasters in the billion-dollar plus range. If data for disasters that cost less than a billion dollars are included, these numbers jump even higher.

 

From 2000 to 2009, there were 59 billion-dollar disasters in the US, costing $510.3 billion. From 2010 to 2019, this increased to 119 billion-dollar disasters, costing $802.0 billion

 

In the decade from 2010 to 2019, insurers paid out $453 billion in natural disaster related losses, according to Aon’s Weather, Climate and Catastrophe Insight 2019 Annual Report. As the incidence of natural disasters increases, insurers will have to grapple with the increasing cost and complexity of processing a growing number of claims.

Real-time payments to debit cards provide an appealing solution on both of these fronts.

 

Saving valuable time and reducing fraud

First, disbursing insurance claims to debit cards reduces uncertainty for both the insurer and the individual or business filing a claim. As noted by Open Platform Head of Product, Susan French, digital claim disbursement via real-time push to debit cards reduces the incidence of fraud for insurance companies by allowing insurers to verify funds are deposited to the correct bank account. With a physical paper check, insurers run the risk of the wrong party intercepting and depositing the check. This risk increases during a natural disaster, when an individual’s home or a company’s physical location may have been destroyed and no longer exist. By using instant payments to debit cards, insurers can verify they are sending funds to the correct bank account. 

From the customer’s perspective, a disaster is a time of overwhelming uncertainty. By paying out a claim in real time, directly to a debit card, insurers can reduce cash flow uncertainty for their consumer and business customers and ensure the funds are available to be put to use immediately. 

 

Lowering costs 

Real-time payments also provide significant cost benefits for insurers and their customers. Mailing paper checks is expensive. On average, disbursing a physical check can cost as little as $1 or more than $10. Digital payments to debit cards typically cost less than $0.50. When multiplied across millions of claims payments, that difference adds up. 

From the customer’s perspective, there is usually no difference in monetary cost between a physical check and a disbursement to a debit card. However, the time a customer has to wait to receive their money is not free. It has implications which are expensive, especially following a natural disaster. In the current pandemic state, digital disbursements have the added benefit of enabling the receiver to access and deploy the funds without leaving their home and potentially exposing themselves to health risks.

 

65% of US consumers said that it is important to extremely important for them to be able to be paid in real time by an organization that owes them money

 

Real-time claim disbursement offers huge benefits during uncertain times and lowers costs for insurers and the insured, but the enhanced customer experience also provides benefits for both that should not be down-played. Some 65% of US consumers said that it is important to extremely important for them to be able to be paid in real time by an organization that owes them money. As competition from savvy insurtech companies such as Hippo and Lemonade increases, being able to offer real-time claim disbursements will become an increasingly important competitive advantage.

Although uncertainty is increasing, along with the rise of natural disasters and global health disruptions, real-time digital disbursements give insurance companies the opportunity to reduce costs and increase ease and security for themselves and their customers. We think that’s a win-win worth pursuing.

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