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Automated Bill Payment: Improved Cash Management and Better Account Retention are Key Benefits for Metropolitan Life Insurance

Few industries today are reaping more benefits from electronic payments through the Automated Clearing House (ACH) than the insurance industry. And few insurance companies are utilizing the ACH more effectively and efficiently than Metropolitan Life Insurance Company.

"The ACH has become the preferred method of collection in the life insurance industry," say Ed Freeman, EFT consultant for Metropolitan Life. "The benefits Automated Bill Payments offer both insurance companies and their customers are just too numerous to ignore."

An Industry Pioneer
Metropolitan Life first began debiting customers' accounts for life insurance premiums way back in 1960. These debits, however, weren't done electronically through the ACH, but rather through paper drafts.

"We were one of the very first insurance companies to use paper drafts," Freeman says. "We were also one of the first companies in our industry to convert to Automated Bill Payment through the ACH as soon as that option became available. Automated Bill Payment worked for us when we first implemented the system in 1973, converting 106,000 policies to ACH, and it's still working for us today."

Metropolitan Life is currently collecting premiums on 1.6 million policies each month electronically through the ACH. This makes Metropolitan Life the second largest private sector ACH originator in the country. The company's ACH volume is growing at a rate of about 12% per year, as 60%-70% of all new life insurance policyholders are paying premiums electronically.

"We have made monthly Automated Bill Payment the preferred method for all customers who want to pay life insurance premiums more frequently than semi-annual," Freeman says. "This is primarily because electronic payments are so much more cost efficient than other types of payment. For instance, each ACH collection we make is about 40 cents cheaper than sending out a bill and processing a paper check".

"Plus, with Automated Bill Payment, we receive funds in our corporate account about five to seven days sooner than if we send out a bill and wait for a check to come in. We know that the funds will be in our account on the payment due date-there's no mail or check clearing "float." This improves our cash flow and cash forecasting abilities and gives us more certainty when planning corporate investments."

Retention is key
While Freeman considers lower costs and improved cash flow and forecasting key benefits, he doesn't hesitate when asked what is the biggest benefit Metropolitan Life enjoys from Automated Bill Payment. "Account retention," Freeman says. "We are seeing far fewer policy cancellations among our customers who pay electronically."

The reason for this is simple: Each time a policyholder sits down and writes a check to pay an insurance premium, he must convince himself that he really wants to keep the policy. After all, life insurance coverage is not an essential for most people. In fact, it is often one of the first expenses trimmed fro the budget when a policy holder finds himself in a financial bind.

When their accounts are debited automatically, however, policyholders are much less likely to think about eliminating or reducing coverage. Paying insurance premiums becomes a passive process, rather than an active one, because the customer doesn't have to do anything to keep the policy active.

The effect of Automated Bill Payments on Metropolitan Life's policy cancellation rate has been dramatic: The company is seeing 50% fewer cancellations among its ACH customers than among those who pay by check.

"We feel that Automated Bill Payment presents a 'win-win' situation," says Freeman. " Both our company and the policyholder benefit. The policyholder benefits from added convenience and, in some cases, lower premiums."

Property/casualty growth slow
The popularity of automated bill payment is skyrocketing among Metropolitan Life insurance customers: however, electronic payments have been slower to take hold among the company's property and casualty policy holders (car, homeowner, etc.). This is not the case at Metropolitan Life, but throughout the insurance industry. "In fact, only a hand full of U.S. companies currently offer Automated Bill Payment to property/casualty insurance, Freeman says." "Most people who own cars and homes have to carry insurance on them. So there's really no decision to be made each month on whether to keep or cancel the policy."

Freeman believes this fact shouldn't discourage insurance companies from offering Automated Bill Payment to property/casualty customers.

"Even though the property/casualty policyholder isn't a keep-cancel decision on the coverage each month, he is making a decision on the insurance carrier," Freeman says. "And if a customers insurance rates goes up, he's likely to shop around for lower rates from another company. If that customer is paying premiums automatically, however, the rate increase will not be as severe, at least psychologically, which means the policyholder will be less likely to shop around for a new carrier."

Another popular argument against Automated Bill Payment in the property/casualty arena is that there are too many premium changes with these types of policies. For instance, a car insurance policy will change if a new driver or vehicle is added or if the current driver has an accident or gets a couple tickets. The concern is that systems would have trouble calculating the debits when changes occur frequently.

"This argument just doesn't hold water," Freeman exclaims. "it's no more difficult to calculate insurance premiums for a customer paying automatically than for one paying by check."

Future growth anticipated
"We believe Automated Bill Payment will take off in the area of property/casualty insurance within the next five to ten years," Freeman says. "And when it does, we want to be a leader in offering it. That's one reason why we're offering Automated Bill Payment to these customers now, even though it's not popular throughout the industry."

Metropolitan Life has only been offering Automated Bill Payment to property/casualty policyholders for a short time. Still, about 20,000 of them are already taking advantage of automated payments.

"Preliminary studies show that persistency among these customers has improved dramatically," Freeman notes. "We anticipate slow but steady growth in automated payments among our property/casualty policyholders over the next few years."

Improve cash management
Metropolitan Life is just one company that is using the Automated Clearing House to streamline payments and collections and improve cash management. Chances are, your company can benefit from electronic payments through the ACH, too.

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