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Gone are the days when Billing was considered merely a back-office function. Today, insurance carriers must offer multiple pay plans and payment method options during quoting/binding and policy servicing. The commission disbursement process of a billing system plays an important role in agency relations with the Insurance carrier. With the ever-changing payment industry, billing systems have also evolved to support payment processing methods as electronic bill presentment and payment (EBPP).
With insurance carriers now showing an inclination to replace legacy billing systems/manual billing processes with modern billing platforms, here are 10 key features to consider:
- Billing Methods: Direct, account, and agency billing methods are considered traditional billing methods, which most billing platforms/products do support. However, the billing product should not be chosen based on the carrier’s current offering of billing methods only. A recommendation is to shortlist a billing product that offers multiple billing methods, especially “Deductible Recovery” should the carrier choose to bill claim deductible to insured in a third-party claim. If insurance carriers have a good amount of mortgagee billed business, inquiry about mortgagee billing support in RFP/RFI will not be a bad idea.
- Moratorium/Deferred Billing/Zip Code Freeze: Moratorium is defined as an ability to temporarily disable invoice and non-pay cancellation process, generally exercised on a disaster condition. Moratorium orders are also issued by state and NAIC. During the COVID-19 pandemic, most insurance carriers deferred billing as the job market is badly directly impacting the insured’s ability to pay. Different billing software products handle moratoriums differently. Moratorium ability at a zip code and county level is highly desirable as it allows to choose and picks. Automatic moratorium lift on a pre-selected date is another feature to look for. It is very important to understand how fast and what’s the process a product offers to set up Moratorium
- Automated Non-Pay Cancellation/Non-Reporting Cancellation Process: Tracking receivable balance, its due date, and issuing a non-pay cancellation transaction is a labor-intensive and error-prone process. To maintain the equity of an account, it is important that carriers keep track of receivables balance. For reporting policies like workers’ compensation, the carrier must track if payroll is reported as per the agreed payroll schedule. Billing product offering automation around the non-pay/non-reporting cancellation process not only helps to maintain equity but also saves time and money by minimizing manual effort.
- Interfaces: An ideal billing system should be a hands-off system. Some of the key interfaces to look for are
- Automated Non-Sufficient Funds (NSF) Transaction: A returned payment from the carrier’s financial institution is a costly matter. Most of the financial institutions charge a returned payment fee to carriers for a returned check. As a result, the accounting team needs to locate the bad cash receipt in the system and do the manual NSF transaction. Generally, financial institutions share a list of returned payments for a day. Depending on how many payments are bad, manual NSF may be a labor-intensive process. Billing product offering automation around NSF processing saves manual effort and assesses NSF fee automatically to insured.
- Commission Disbursement Hold: Commission dispute with agencies is something that is a common phenomenon and not something new. For direct bill policies, a nice ability will be an ability to put commission disbursement on hold for a specific policy or all policies within an account.
- Automate Match Suspense Payment: Business Scenarios of accepting cash from the insured as down-payment or deposit prior to binding the policy is quite common. For new business and/or rollover generally, policy number and or account number is mostly unknown at the time of quoting/binding. Such payments, when posted to the billing system generally hit the suspense account as policy # is unknown. Billing users spend hours identifying such suspense payments to the appropriate policy. Based on the configuration, an automatic match of payment with policy being interfaced is a time-saving capability and increases the productivity of users. Having more suspense unallocated cash is not desirable.
- Configurable Cash Allocation Rules: Insurers should pay attention if their choice of Billing product offers configurable cash allocation rules by receivable type, line of business.
- Configurable Billing Fee: A billing fee is a group name of receivable generated by billing systems. Installment fee, late fee, reinstatement fee, NSF Fee are key types of billing fee. Billing fee adds towards revenue generation if the insurer charges them. This billing fee should be configurable by state and writing company.
- Automated Collection Process and Automated Write-off: Most insurers have an internal and external collection process. In this process, once a policy is cancelled/expired with an unpaid debit balance, depending on the threshold of the balance, insurers send out collection letters at regular intervals. Sending manual letters is not only time-consuming but also subject to legal suits if by mistake one insured is given a different treatment than another or a collection letter was mistakenly sent. The external collection process deals with sending information on policy balances for those accounts where there is still balance left after internal collection letters were sent out. Automation around collection and write-off balances brings high savings of manual efforts and brings process efficiency.
Billing is not just an invoice generation process. A successful billing implementation also depends on the following considerations:
- Requirement Elicitation and Management: Unlike policy administration system (PAS) implementation where underwriting and operation are key stakeholder groups, billing system implementation not only needs finance & accounting but legal, agency management, sales may so be required depending on which billing feature is on the table. To further elaborate, as an example, buy-in from the legal team is highly recommended before finalizing requirements on the collection process and adopting the TO BE collection process.
- PAS Reconciliation: Balancing and reconciliation of written premium, tax, fee, and surcharges by policy number in between PAS and billing is a key activity. Implementation team should work with the customer team to establish the process and responsibility of both the teams.
- Conversion /Migration: The need of migrating data from a legacy system to a new billing system must be discussed and scoped in the early phase of implementation. If migration is under the scope, the team should get an agreement on the overall approach of conversion and balancing & conversion items and their percentage. Runoff and renewal, open book (account /policies where billing activity is expected regardless of what’s the current balance), and full conversion are three popular methods.
- Billing Jobs: Billing systems are jobs intensive software. In a typical software, there is more than one billing job involved to accomplish business needs such as invoicing, document generation, collection job, month-end jobs, etc. If the software is installed on-premise for the insurer, then the software vendor should do a techno functional knowledge on billing jobs that must be shared with the carrier. The implementation team from the insurer side must identify individual teams responsible for automating and scheduling billing jobs. If the product has an in-built scheduler, then that’s an add-on feature.
- Commission Management: Commission payable management for direct/account bill policy is an important aspect of the billing system. The generation of an accurate and timely commission statement is one of the criteria for a successful implementation. A discussion should be done on how these commission statements will be delivered to the doorstep of insurers since manually downloading commission statements by the agency is a manual effort. If Insurer has hundreds of agencies, then downloading Commission statement manually is not recommended.
Conclusion: Billing product selection should be vision-based. The implementation team should include an expert functional consultant as billing is a heavy transactional system with potential with many integrations/interfaces. To avoid production issues, a detailed needs analysis is required to deeply understand “what” is expected by business users from the new billing system few insurers are now offering cryptocurrency payments, which may drive technological adjustments to billing systems.
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Very good effort Ravish !! Keep sharing your insights.