When an insurance premium gets delayed or is unpaid, it sets off a chain of reaction.
As the insured customer, this may mean your insurance policy would get cancelled as soon as your grace period elapses. You would also have a non-payment cancellation on your insurance record for up to 5 years and be considered a high-risk customer, making it harder for you to get insurance coverage from other companies.
Then, the insurance company could lose potential revenue and find it difficult to retain customers.
This isn’t a peculiar situation, these missed payments can often happen for several reasons;
the customer did not remember to make the payment
they can’t afford to continue paying their insurance premiums
or the process of making these payments isn’t convenient for them
As an insurance company, the first two reasons are completely out of your control, but making the payment experience better for your customers is attainable.
What happens when a customer needs to pay their insurance premium
Traditionally, customers use cards to set up recurring debits for their premium payments. This allows the insurance company to automatically charge their linked cards for the payments at the due date.
However, cards require too many steps in the authorisation process. The customer has to manually enter their 16-digit card number, CVV number, card expiry date and one-time password (OTP) before the card can be linked and a recurring debit set up. This authorisation process is often not one-time as well, the customer will have to relink their card in case of expiration or loss.
In addition, payments might fail when you charge missing, cancelled, unfunded, or expired cards, resulting in delayed payments.
On the business side, cards are too expensive to manage; the insurance company might pay interchange fees as high as 3% for every transaction processed, and this doesn’t include associated processor fees.
Cards are also more susceptible to unauthorised debits via stolen card details, this can be costly to the business which has to refund the customer for these fraudulent charges.
With the downsides associated with card payments, an insurance company that wants to retain customers and ensure a healthy flow of revenue can use a more convenient and improved payment experience like Direct Debit.
Improving the insurance payment flow with Direct Debit
Direct Debit allows businesses to collect payments directly from customers’ accounts on a recurring basis and with their consent. To enable the regular flow of payments from one account to another, customers give them authorization via a direct debit mandate; a physical or e-mandate form they complete with their banking details.
This means an insurance company can prompt customers to set up a direct debit mandate on their accounts, enabling the business to automatically collect varying premium amounts at the scheduled dates without requiring consistent reauthorisation like debit cards.
However, Direct Debit shouldn’t be confused with Standing Orders though they are both automatic, recurring payment methods. Standing orders allow customers to initiate the payment and set it up through their bank. In contrast, direct debit is initiated by the business and approved by the customer and their bank.
Read more: Differences between Direct Debit and Standing Orders
How Direct Debit benefits insurance companies
By using Direct Debit as an alternative method for collecting insurance payments from customers, insurance companies can experience benefits like:
More timely payments: Direct debits are automatic and ensure that you can easily collect insurance premiums when they are due, as long as you have been authorised to do so by the customer. This also helps customers pay on time and reduces the risk of their coverage lapsing.
Reduced churn: When payments are not delayed, you can reduce your churn rate and maintain a steady flow of revenue for your business. Also, when you make it easier for customers to pay for their insurance coverage with Direct Debit, they are less likely to drop off.
Stable cash flow: Insurance companies need a consistent cash flow to cover insurance claims, business expenses, and other operational costs. Direct Debit helps you to collect insurance payments regularly on due dates and maintain steady revenue for your business without the experience of dealing with expired, missing, or cancelled cards.
Lower transaction fees: Managing recurring payments with Direct Debit is cheaper than using cards. Direct Debit providers usually charge an average of a 1% fee for every transaction so you can still make a good profit.
Read more: Why Direct Debit is better than cards for recurring payments
Setting up Direct Debit for your insurance service
To start collecting automated payments with Direct Debit, using a third-party provider like Mono Direct Debit is usually recommended if you don’t want to deal with maintenance costs and cumbersome implementation processes.
Mono Direct Debit allow insurance companies in Nigeria to offer their customers a more flexible and convenient way to pay their premiums at agreed intervals across multiple financial institutions and account types. This includes benefits like:
Easier setup process: Quickly initiate a direct debit mandate on customers’ accounts without writing code via the No-code Mono Direct Debit Mandate feature or by implementing the Mono Direct Debit API.
Convenient authorisation flow: Typically customers can set up a direct debit mandate on their account by securely logging in with their account details to prove account ownership. Then, they complete a transfer of NGN 50 to a NIBSS account for e-mandates or digitally share their signature for signature mandate types.
Digitisation of paper mandates: Insurance companies that require customers to authorise mandates in person can easily upload and digitise these paper mandates on the Mono dashboard and send them to the customers’ banks for approval in a few clicks. This enables them to seamlessly initiate a direct debit on customers’ accounts and cut down long administrative processes.
Secure payments: Unlike cards that can be easily compromised and stolen card details used to make payments, the chance of unauthorised access with direct debit is lower. Every direct debit payment is approved by the customer and their bank before it is processed
Affordable pricing: Mono Direct Debit is cheaper than cards. You only pay a 1% fee for every successful transaction, capped at
N1000 for amounts above 20,000, or a minimum fee of N55 for amounts between N200 and N20,000.
To recap, here’s what happens when you use cards or Mono Direct Debit.
| Cards | Mono Direct Debit | |
|---|---|---|
| Authorisation | Requires many clicks in the authorisation flow. | Customers just complete a direct debit mandate. |
| Pricing | Payment processing fees cost up to 3% or more. | A 1% transaction fee is charged, capped at N1000. |
| Security | More susceptible to payment fraud. | Chances of unauthorised debits are lower. |
| Convenience | Customers would have to relink their cards if it gets expired or cancelled. | Bank accounts don’t expire, so authorisation is done once. |
By switching to Mono Direct Debit, insurance companies like Coronation Insurance can now seamlessly manage and digitise physical mandates for their customers, and ensure timely insurance payments to lock in more revenue.
Getting started with Mono Direct Debit is easy. Sign up here to use Mono and explore our technical guides at mono.co/docs or create a direct debit mandate without coding to start collecting automated payments with ease.
