Managing arrears efficiently is a critical challenge for insurers. Late or missed payments not only impact cash flow, but also create administrative burdens, increase regulatory risks, and potentially lead to customer dissatisfaction. More concerning is the longer a policyholder is in arrears, the chance of policy cancellation increases.
Traditional arrears management processes, often manual or using outdated technology, can no longer keep pace with the complexities of modern customer expectations, and business demands. Many existing Policy Administration Systems (PAS) were not designed to provide the functionality that is becoming necessary. This is where a modern digital arrears management solution comes in - providing insurers with a powerful tool to enhance operational efficiency, reduce delinquencies, and improve the overall customer experience.
The challenges of manual arrears management
Many insurers still rely on outdated systems or manual processes to track, follow up, and recover overdue payments. This approach comes with significant challenges:
• Client retention risks: the longer a policyholder is in arrears, the higher the chance of non-payment.
• Policy cancellation: policyholders who are late to engage with their insurer or broker about making the overdue payment face a policy cancellation by the insurer.
• Administrative burden: manually tracking missed payments, generating reminders, and reconciling accounts consume valuable time and resources.
• Inconsistent follow-ups: human error can lead to delays or inconsistencies in notifying customers, resulting in prolonged arrears and potential coverage lapses.
• Slow notifications: typically, arrears are notified by mail, which adds to the delay of a policyholder being made aware of the overdue payment.
• Customer service burden: policyholders who want to make overdue payments will often phone an insurer’s call centre to make the payment, which adds to the call centre workload.
• Payment inflexibility: insurers existing systems often are unable to take a date specific payment, or if there is hardship, the existing systems are unable to easily setup payment plans, payment holidays, or payment waivers.
• Customer frustration: a lack of easy payment options, and the prospect of having to phone a call centre can damage customer relationships.
• Compliance risks: regulatory frameworks (such as Conduct of Financial Institutions regime (CoFI) in New Zealand and Financial Accountability Regime (FAR) in Australia) often require insurers to demonstrate fair and transparent arrears management practices. A disorganised or unrecorded approach increases the risk of non-compliance.
• Scalability constraints: Manual and fragmented arrears collection processes make it increasingly difficult and costly to scale operations efficiently.
• Revenue leakage: late payments and policy cancellations due to arrears can significantly impact an insurer’s bottom line.
How to overcome these challenges
Digitisation and automation of processes is an efficient and effective way to manage arrears. However, many PAS systems that insurers use are overburdened with tasks they were never built for. So, demanding more functionality from them will likely give limited results. A more practical solution is using best-of-breed software that works with these PAS systems.
Simfuni is software that makes insurance easier to bill, pay, and manage. Simfuni uses data from existing PAS platforms to provide a range of modern digital billing, payment and customer self-service functionality. Simfuni’s digital arrears management solution is one of the solutions available to insurers to help improve premium collection and retention rates, and reduce cost to serve.
The benefits of Simfuni’s digital arrears management
Simfuni's digital arrears management integrates automation, intelligent workflows, and payment tools to streamline overdue payment handling, reducing administrative effort and costs while improving accuracy, retention rates, and customer experience.
Key benefits of Simfuni’s solution include:
1. Higher retention rates
Customers may miss payments for various reasons, from a simple oversight such as an overdrawn account, to a job change resulting in a different payday, or even because they are experiencing financial hardship. Simfuni’s digital arrears solution provides intelligent workflows and payment tools that increase the retention rates of policyholders in arrears. These include digital workflows for establishing payment plans, granting payment holidays, or applying payment waivers at the insurer's discretion.
2. Efficiency and cost savings
Automated arrears systems reduce the need for manual tracking and intervention by integrating directly with PAS platforms. This reduces operational costs and allows staff to focus on higher-value tasks.
3. Quick customer engagement
Automation enables insurers to send instant, personalised payment reminders through digital channels, such as email and SMS. This helps customers quickly become aware of overdue payments, allowing them to take action sooner.
4. Faster recovery of overdue payments
With automated reminders and intelligent workflows, insurers can recover overdue payments more efficiently. A digital self-service portal allows policyholders to settle arrears themselves on their preferred date and with their preferred payment method, significantly reducing the duration of unpaid premiums.
5. Payment visibility
Once payment has been made, the payment is automatically matched to a person and policy. This information is then displayed instantly in dashboards.
6. Improved compliance and auditability
Automated digital arrears solutions ensure compliance with regulatory requirements by maintaining detailed records of payment communications, interactions, and follow-ups. This enables insurers to clearly demonstrate compliance during audits or disputes.
7. Enhanced customer experience
By providing clear, timely, and hassle-free payment options, automation reduces friction in the arrears process. Customers appreciate proactive and transparent communication, leading to improved retention rates.
By reducing manual intervention, ensuring regulatory compliance, and enhancing the payment experience, Simfuni helps insurers recover payments faster while maintaining positive customer relationships.
The future of arrears management in insurance
As the insurance industry continues to embrace digital transformation, modern digital arrears management will evolve from a competitive advantage into an industry standard. Leveraging open banking, artificial intelligence (AI) and machine learning, future features will offer even more predictive insights, helping insurers identify at-risk accounts before they fall into arrears and offering personalised payment plans to prevent policy lapses.
Are your arrears processes keeping up?
Missed or late insurance payments have wide-ranging consequences beyond just cash flow disruption. They can lead to increased policy cancellations, customer dissatisfaction, compliance risks, and administrative burdens. Manual or outdated arrears management processes contribute to inefficiencies like slow notifications, inconsistent follow-ups, and a lack of payment flexibility - all of which frustrate customers and strain call centres. These inefficiencies are compounded by many insurers’ legacy Policy Administration Systems, which often lack modern functionality for digital engagement, flexible payments, or regulatory reporting.
For insurers looking to modernise their payment processes and customer service, digital arrears management is a crucial investment. Not only does it improve operational efficiency and enhance customer satisfaction, but it also, reduces risk, and strengthens financial stability.
If your arrears management still relies on manual or outdated digital processes, it may be time to consider a modern digital solution. The benefits are clear - better cash flow, reduced administrative burden, and a more seamless experience for policyholders.