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![Page 1: Insurance Payments Transformation Aaron Schneider, VP, Bank of America Merchant Services October 23, 2007.](https://reader033.fdocuments.in/reader033/viewer/2022061305/5514453c550346284e8b4b5d/html5/thumbnails/1.jpg)
Insurance Payments Transformation
Aaron Schneider, VP, Bank of America Merchant Services
October 23, 2007
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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
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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.
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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)
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• 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
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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)
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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)
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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)
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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”
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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 PracticeSource: First Data ® : “Real-time Debit Alternative Payments STAR® PIN-Secure & STAR® Bill Payment”
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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= $.87This 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
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Current Landscape
• Bill payment volume is a sizeable opportunity with volume concentrated in insurance, utilities and telecommunications
9%
11%
18%20%
34%
Insurance
Utilities
Telecom
PropertyManagement
Cable/Satellite/ISP
Other
34%
20%
11%
Other
12%
PropertyManagement
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%
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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
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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
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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.
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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
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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
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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 merchant’s 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
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Payment Methods
52%Use online
bill pay at bank
Web site
13%
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, 2006Responsible 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
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Growth Opportunities
• Statistics reported from a top 5 insurance company (based on revenues)
11%
13%
1%
3%
5%
7%
9%
11%
13%
2006 2007
Per
centa
ge o
f P
aym
ents
Pai
d vi
a
Cre
dit
Car
d
Approximate % of overall payments (among all types of insurance)
paid via credit card
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Stats for Top Insurance Company
Percentage of payments paid via credit cards in 2006 and 2007 for specific lines of insurance
87%
79%
70%
75%
80%
85%
90%
95%
100%
Standard &
Non-Standard Auto
Homeowners
Type of Insurance
Per
cent
age
(%) o
f
Pay
men
ts P
aid
via
Cre
dit
Car
d
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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)
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Insurance Inserts
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Insurance Company Statement Insert
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BillPay Marketing
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BillPay Marketing
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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?
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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
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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.
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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
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Questions/Comments/Discussion
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