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By CYRIL TUOHY, managing editor of Risk & Insurance®

Property/casualty insurance companies continue to favor direct billing over agency billing, according to a recent survey.

It is also a sign that carriers are taking a closer look at how they manage their money, and that agents, unable to take advantage of the float due to low interest rates, are happy to hand over the duties of managing money to carriers.

"Bill reconciliation is a headache for agents," said Kimberly Morton, a product marketing manager with insurance billing vendor Guidewire Software Inc., which conducted the 2010 Billing Market Survey.

"Years ago when the economy was good and interest rates were higher, agents could get the interest on the float," Morton added. "There's no money on float so they are saying, 'Let the carrier deal with it.' "

Direct billing systems allow carriers to bill clients directly, and then turn around and pay agents their commission. Agency billing systems allow agents to bill clients. Many of the largest carriers support both systems.

Of the 53 percent of carriers that support agency billing, 34 percent plan to decrease agency billing over the next three years, compared with 19 percent who plan to increase agency billing, the survey found.

The 34 percent of carriers in the 2010 survey who planned to decrease agency billing over the next three years represent an increase of seven percentage points from 2008, the survey also found.

MORE IMPORTANT THAN EVER

Timely and efficient billing processes are considered critical tools in the collection premium. Every premium dollar earned but not collected is a dollar that comes out of a carrier's bottom line.

Carrier sensitivities toward billing have climbed over the past two years, the survey revealed.

As many as 63 percent of the respondents in the 2010 survey said billing is "very important" to customer satisfaction, up 9 percentage points from the 2008 survey. Survey responses were compiled from 40 North American insurance carriers.

As many as 88 percent of carriers surveyed reported that billing has a direct impact on customer retention, up slightly from 2008, the survey found.

The survey also uncovered that the number of carriers looking to chase down uncollected earned premiums was more evenly distributed among small, midsize and large carriers compared with two years ago.

"Today, most carriers recognize the impact billing can have on customer satisfaction and retention," Morton added, as carriers of all sizes have come to realize the importance of efficient billing.

Billing matters because 100 percent of insurance buyers get billed, either by their carrier or through their agents and brokers. Compare that percentage with the number of insureds who file a claim.

Take corporate risk managers. Fewer then 10 percent of risk managers file a claim in any given year, the risk managers themselves claim.

No wonder Morton said that she noticed more interest among insurance carriers in billing systems this year compared with last year.

ALL OUT REPLACEMENT?

Mike Fitzgerald, senior analyst in the insurance practice of Celent, the insurance technology consultancy, said that he's seen a "significant increase" in the number of carriers replacing their billing systems.

The billing systems replacement projects, which tend to be more popular with larger carriers, involve removing billing systems from their current homes within the policy administration system.

The survey found that 34 percent of carriers still house billing processes within their policy administration systems. Of that 34 percent, 58 percent plan to separate billing from policy administration in the future.

Replacing or integrating a billing system into a carrier's infrastructure can easily run into the millions of dollars, even for a small carrier writing less than $100 million in premium, Morton added.

A total of 32 percent of respondents in the latest survey "strongly agree" that the ability to offer flexibility and a variety of billing options is a source of competitive advantage, up 19 percentage points from the 2008 survey.

Respondents to the most recent survey reported little change from the 2008 survey in terms of challenges faced by billing systems managers. They remain frustrated by the expense of maintaining billing systems, the lack of Web-based access to billing systems, the difficulty of adding new functions or making changes to a billing system, and the absence of billing capabilities and functions within policy administration systems, the survey found.

Among the Guidewire survey's other findings:

-- More than 94 percent of carriers polled believe the billing experience is important to customers' levels of satisfaction.

-- 59 percent of carriers report that their current billing systems prevent them from providing superior customer service.

-- 35 percent of carriers are unable to provide a single bill for multiple policies.

-- 41 percent of carriers report that their current billing systems will not be able to support future business needs.

-- For 47 percent of carriers, uncollected earned premium is a significant problem.

-- More than 85 percent state that the ability to offer a variety of billing programs would give them a competitive advantage.

-- 25 percent of respondents reported that modification to their primary billing systems is so expensive and time-consuming that the carriers no longer bother.

August 1, 2010

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