Cultivating Growth

Billing is a critical but often overlooked aspect of customer service and retention - not only for policyholders, but for agents and distributors as well.

Every insurance carrier creates and distributes bills. And as long as those bills have been accurate and delivered on time, most insurers have paid little attention to improving the customer experience around billing.

But that has begun to change. In the past few years, insurers have begun to look at their billing systems with fresh eyes. They are considering how an improved billing process can provide differentiation and a competitive advantage. After all, the bill is the most frequent point of customer contact - a customer may go months or years without submitting a claim, but all customers receive bills at regular intervals.

Billing provides a huge opportunity for insurers to improve customer satisfaction and retention, says Craig Weber, insurance practice senior vice president at Boston-based research and consulting firm Celent. "Billing has traditionally been looked at as an administrative task," Weber says. "But insurers are starting to take cues from large-volume billers, such as utilities and communications companies, and are realizing that billing is a very powerful tool for maintaining and enhancing customer service."

In the current difficult and competitive market, says Weber, every customer becomes even more important. And receiving a bill is when the policyholder thinks about insurance coverage and costs; if the billing process isn't handled well, the experience may spur the customer to defect to another carrier.

"Billing is our constant contact with our customer, so we want to make it as easy and painless as possible," says Thomas Kern, vice president of product administration and program management at Harleysville, Pa.-based Harleysville Insurance ($1.1 billion in 2008 total net written premiums). Customers are enthusiastic about Harleysville's new credit card and debit card billing services, Kern reports, noting that within six months, 7 percent of Harleysville's customers have opted for the new payment type - a result exceeding the 5 percent uptick the carrier had targeted prior to rollout.

Harleysville continues to use its own home-grown billing system, according to Kern. But the carrier relies on Brookfield, Wis.-based Fiserv Electronic Payments Services (formerly BillMatrix Corp.) to manage credit card, debit card and one-time EFT payments.

Even if insurers are hesitant to embark on new billing systems initiatives, most companies appear to recognize the importance of billing to customer satisfaction and retention. In a billing market survey of more than 60 P&C carriers in North America conducted by Guidewire Software (San Mateo, Calif.), 80 percent of respondents said they believe that billing is "very important" or "important" to customer satisfaction, and 86 percent said they believe that billing affects customer retention (see related chart, below).

The importance of billing for insurers is summed up by Billy McCarter, SVP for delivery at New York-based MajescoMastek: "Nobody reads their policy, but everybody reads their bill. If you get the bill wrong, the customer may leave. But if you get the bill right, that bill becomes an effective sales and marketing tool."

Leap of Faith for Some

Although some insurers, such as Harleysville, are working to optimize their billing systems, most are not, says Jay Otterbacher, VP of Exceed Delivery at CSC, in Falls Church, Va. "While some insurers see billing as critical to their CRM strategy and an area they can exploit, many do not, since billing isn't a pain point," says Otterbacher. "Other initiatives, such as claims or policy system enhancements, more often bubble to the top of the list of priorities."

Part of the trepidation in attacking billing is that it is a large, complex project that requires integration with a multitude of other systems, Otterbacher notes. "With billing, there is a lot of opportunity to mess up, and if you do, it's a very big deal," he adds.

Another stumbling block is the pervasive feeling that it's difficult to determine an ROI on a large-scale billing replacement, according to Kimberly Morton, global product marketing director for Guidewire Software. "If you wait to try to quantify an ROI, you'll never replace your billing system. In some ways, replacing billing is a leap of faith," Morton says.

That said, policyholders increasingly want flexibility in their payment plans in order to better manage their finances. For example, customers with tight household budgets may find it easier to pay for insurance coverage on a monthly or quarterly basis rather than paying one large annual bill. Insurers that can offer payment options improve customer retention, says CSC's Otterbacher, since receiving a large bill can be an impetus to shop around for a less expensive policy.

Harleysville has also seen an increase in the number of customers asking for reduced coverage or higher deductibles to lower their premiums, possibly due to economic pressures, says the insurer's Kern. These types of changes can be problematic when legacy billing systems do not allow mid-cycle policy changes.

"If you don't change the policy, billing remains pretty simple," says Kern. "But if the customer asks to make a change to the policy today, and you produced an invoice last night, you need a billing system that can adjust the amount due and reissue the invoice." Although the process of making these types of changes increases Harleysville's operational costs, Kern says, the carrier needs this flexibility for customer satisfaction and retention.

While economic conditions may have spurred customers to rethink their insurance coverage and how frequently they pay their premiums, most tech-savvy customers expect their insurers to be able to change their billing cycle as many times as they would like, says Guidewire's Morton. In addition to pleasing customers, insurers also benefit because customers are more likely to make timely payments if the payment plan suits their financial circumstances, she says.

Look Beyond Costs

In the current cost-conscious environment, many insurers are comfortable with their unit cost per bill and see little benefit in investing in a billing system. But that is a mistake, says Celent's Weber. "While unit costs are important considerations, especially for large insurers with huge volumes of payments, unit costs don't tell the whole story," he says. "Insurers not taking advantage of innovative billing practices and best practices are missing out on improving customer satisfaction and retention."

CSC's Otterbacher agrees that, where insurers are looking at billing system upgrades, they are less focused on doing so to reduce costs and more interested in improving customer retention and satisfaction. However, he says, those insurers running multiple billing systems will reduce operational and maintenance costs by moving to a single system.

Insurers that can provide policyholders with single invoices covering multiple policies will also save in mailing and processing costs. For example, by moving to a consolidated bill, Indianapolis-based Indiana Farm Bureau Insurance reduced mailing costs by 10 percent to 30 percent, says Jim Putka, the company's IT project manager (see related case study, page 33).

Harleysville's Kern says it's difficult to measure the success of the carrier's billing transformation on customer retention and satisfaction. But based on the rapid adoption of the new billing options and positive customer feedback, he says, he strongly believes that the flexibility of the billing system has improved customer retention.

There are ways to gauge customer satisfaction and retention, points out MajescoMastek's McCarter. One way is to measure the number of customers who use online self-service channels to make changes to their policies or to pay bills. "Self service reduces the workload of agents and call center representatives, reducing costs. Since the customer is entering the data, accuracy is improved," he says.

The Agent as Customer

In addition to improving policyholder satisfaction and retention, insurers can use billing to improve their relationships with another type of customer: their agents. "We pride ourselves on having a tight relationship with our agents," says Harleysville's Kern. "We listen to their feedback and have heard that we rival any company when it comes to billing, and we're constantly trying to improve. We don't want our agents to use billing as an excuse to go elsewhere."

In fact, it was agent feedback that caused Harleysville to quickly correct billing concerns. Late in 2009, the insurer was in the middle of a policy administration system migration. Because of this, existing policies were "living" in more than one system, causing multiple invoices to be generated for the same policy, according to Kern. Agents, he says, were upset, since their customers were confused by the change in invoicing.

"The feedback was loud and clear," recalls Kern. "We could have told the agents that they would need to put up with the billing until we finished the policy system conversion, but instead, we implemented a solution within 30 days to produce a single invoice for those accounts."

Celent's Weber agrees that a streamlined billing system can increase agent satisfaction, and he argues for using a single tool set to respond to multiple agent needs. For example, it helps when the billing system makes up-to-date commission information readily available via a Web portal or even an iPhone application, Weber says. Although billing and commission information do not need to reside in the same system, he explains, they do need to be tightly integrated, especially as insurers get more creative in devising compensation plans that raise the level of complexity.

At Harleysville, billing and commissions are separate but tightly integrated systems. "Our agency bill system is tied to our account reconciliation system, so if there is a discrepancy, our representatives are able to easily resolve the issue," says the carrier's Kern.

Another enhancement that can improve agent satisfaction is to provide automated reconciliation between the carrier and the agency for taxes and fees, says CSC's Otterbacher.

Adds Guidewire's Morton, "Billing is no longer just a form of collections. You need to take into account the needs of agents. They want to see details of commissions and incentive plans and upcoming commission payments. Unfortunately, most of that information is locked up in legacy billing systems, resulting in delays."

New Ways to Pay

As customers and agents become more sophisticated in different ways of making payments, new service models, such as mobile payments, will continue to drive innovation in billing, says Celent's Weber. Not only will customers be able to receive text messages, such as reminders of bill due dates, they also will be able to make payments via the mobile devices.

But with all the talk about electronic payments, the insurance industry remains largely paper-based. According to a recent Celent research report, almost 60 percent of customer payments are received by mail and only 32 percent are automated. Fifteen percent of customers make payments via the Web, and only 2 percent make mobile payments (see Figure 2, opposite page).

For now, insurers are still getting comfortable with offering credit card and debit card payments and online bill pay to customers. Harleysville's Kern notes that his organization offers many methods of payments to customers (not including mobile payments) and that he is satisfied with the current options. He says Harleysville will focus less on payment options and more on flexible payment plans.

Rip and Replace for Next Gen?

Eventually, however, legacy billing systems may not support insurers' growth strategies. A complete rip and replace of the billing system is an expensive and time-consuming project, but may be the only option for insurers wanting to optimize billing. The difficulty, says Celent's Weber, is accessing data that resides in legacy billing systems. Since older systems generally are not Web-services friendly, they often are unable to communicate with add-ons such as Web portals.

Another problem is that legacy systems tend to run on a batch cycle rather than the real-time transaction processing necessary for today's policyholders and distributors. "It used to be good enough to say that the system will update overnight and reflect your balance tomorrow, but the expectation is that the information should be updated in real time," says Weber. "Unfortunately, that is impossible for most insurers."

He also reminds insurers that when looking for ROI on their billing projects, the most powerful lever to pull is automation. "Automating processing lowers costs significantly," he says. But the key characteristic of the next-generation billing system will be a single processing point within the organization that eliminates the multisystem solutions that pervade the industry today, according to Weber.

But CSC's Otterbacher doesn't believe that a full-scale rip and replace of the billing system is necessary for those insurers that already have a service-oriented-architecture-based billing system in place. Even those insurers lacking SOA-based billing systems can adopt an incremental approach to enhancements rather than rip and replace, he contends.

SOA is the next wave for billing systems, says Otterbacher. "The objective of SOA is to isolate individual business services that run on another platform and have the billing system call those functions," he says. "This also allows carriers to pick and choose the business capabilities they want, perhaps by line of business. Discretely putting those functions together provides insurers with flexibility in how they deliver billing."

SOA-based billing can also help insurers modernize how they market their offerings. Legacy billing systems make it difficult for insurers to use bills as a vehicle for customized marketing messages, for example. Most carriers are limited to sending generic marketing messages to policyholders - customers who don't own cars may receive messages inviting them to add an automobile policy to their homeowners' policy, for example. But via an SOA platform, billing systems can be integrated with CRM and document management systems, says Guidewire's Morton.

In addition to flexibility, an SOA platform can also future-proof the billing system, says MajescoMastek's McCarter. He cites customer Farmers Alliance Mutual Insurance Co. (FAMI) as an example of an insurer able to improve the interaction among multiple systems by integrating components into an SOA framework. "FAMI created an enterprise data model for their business, and we plugged our components into the SOA framework. It streamlined their technology infrastructure," McCarter says.

Cloud computing, where services are delivered virtually on an as-requested basis, is the next technological advance in billing systems, according to McCarter. "We offer billing as an ASP [model] today and are looking to move to a SaaS [software-as-a-service] model to allow insurers to consume just the processing that they need," he says.

Figure 1
How Important Is Billing to Customer Satisfaction?

Very Important
Large Carriers (More than $1B in DWP) 72%
Medium (Btwn. $100M and $1B in DWP) 47%
Small (Less than $100M in DWP) 50%

Important
Large Carriers (More than $1B in DWP) 21%
Medium (Btwn. $100M and $1B in DWP) 30%
Small (Less than $100M in DWP) 17%

Somewhat Important
Large Carriers (More than $1B in DWP) 7%
Medium (Btwn. $100M and $1B in DWP) 20%
Small (Less than $100M in DWP) 33%

Not Important
Large Carriers (More than $1B in DWP) 0%
Medium (Btwn. $100M and $1B in DWP) 3%
Small (Less than $100M in DWP) 0%

Data: GuideWire Software Billing Market Survey Results Report, April 2008

Figure 2
Payments by Delivery Method

What delivery methods do customers use to pay insurance bills?

Mail (Directly to us or via lockbox) 58%

Automated (ACH/EFT) 32%

Web 15%

In Person (Field) 13%

Other 10%

Phone 8%

In Person (Home Office) 8%

Mobile 2%

Data: Celent Survey

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See related articles on pages 32 and 33.