Imagine the delight of your policyholders when they submit a claim for damage in the morning via smartphone, receive a settlement offer by lunch and have the money in their bank account by supper time. It almost sounds like science fiction or how insurance companies may operate in the future, but the future is here. This scenario is a quickly growing reality as the result of a new set of standards developed by the International Organization for Standardization, namely, ISO 20022. These standards streamline the reconciliation, or record matching, that causes inefficiencies under the current financial transfer system, making the transfer of funds more seamless to consumers. ISO 20022 is already adopted in Europe, as of 2018, and should be coming to Canada very soon.
Payments Canada is responsible for the financial infrastructure that enables the transfer of money from one party to another. Despite major advances in wire transfers and reconciliation times, there are still many inefficiencies that cause delays from the time money is sent to when the recipient gets it.
When you settle a claim, you usually need to send a request for a cheque or draft along with claimant information, a claim number and other data to the part of the company assigned this function. Cheques over certain amounts often require additional authorization and handling. The cheque and accompanying data must go to other departments to be recorded and charged against the appropriate accounts, and recorded for the eventual preparation of financial reports to stockholders, policyholders and regulators. In other words, there are a lot of steps involved in cutting this cheque. It then gets mailed to the claimant and taken to their bank, adding more time to when the funds are finally available.
This scenario reveals one of the biggest flaws under the current financial system. It doesn’t allow for the simultaneous transfer of funds and the data associated with the funds, other than basic payee and banking information. Much of the delay in money transfers stems from the time and expense involved in reconciling the payments with the data that explains them, along with the corresponding record keeping, reporting, navigating multiple languages and transfer systems, and getting everything to work together. This is an oversimplified explanation, but it gives you an idea why foreign cheques take so long to clear and why many merchants don’t accept electronic payments.
ISO 20002 makes the above same-day payment scenario a reality by working with the Society for Worldwide Interbank Financial Telecommunication, or SWIFT, to establish a common language that financial institutions worldwide can use for transferring money. Messages in this language can contain data and payments for faster, seamless transfers. To put it simply, in the claim scenario above, this translates to a claim cheque being deposited into a claimant’s account as soon as they “accept” a settlement offer on their smartphone.
The ISO 20022 standard does the following to speed money transfers:
- Enhanced remittance information – This addresses the need to send more payment information with money transfers, such as claim information, to automate reconciling and processing of money transfers at the same time.
- Support for global interoperability – Adopting ISO 20022 helps Canadian businesses stay competitive and establishes a global system for cross-border money exchanges.
- Efficiencies in managing and supporting multiple payments standards – Combines the multiple current payment standards into one global standard to reduce the costs associated with processing transactions and to enable sending payment and data in a single message.
- Reduction of paper-based payments – With more electronic payment options, customers should use fewer cheques and generate less paperwork.
With most insurance companies offering more or less the same product, same-day claim payments give your company a competitive advantage that may not have seemed possible not too long ago. Expect to see them soon.