– Collection and Disbursement
Customizing in SAP standard is the key to quality improvement
Why smart adjustments ensure successful receivables management - and how profitable customers and policies are retained in the portfolio
Insurers have been automatically collecting overdue premiums or contributions for many years
However, many of them have not yet realized the possibilities offered by software applications such as SAP Collections & Disbursements (FS-CD - collections/disbursements for insurance companies). These solutions take into account differences between the various insurance lines, branches and product groups. They also allow further differentiation - for example, according to self-defined customer groups or selected characteristics of insurance contracts that are aligned with the company's success. With the help of flexible customization options in the SAP FS-CD module, a wide range of dunning procedures, levels and activities can be configured in this way. As a result, policyholders are more satisfied - and feel a stronger sense of loyalty to the company.
Smart receivables management is smart customer management
"The German insurance market is as diverse as its customers." That's how the German Insurance Association (GDV) sees it. However, diversity quickly fades when it comes to the topic of dunning procedures.
Dunning processes are practiced differently in different organizations, says Sascha Koch, Lead Sub ledger Accounting IKOR. In a video panel, our IKOR sub ledger expert discusses with Jochem Schültke, Solution Architect Insurance at SAP: What matters in modern collections and disbursements and how sub ledger processes can be accelerated.
Often the easiest way is not the most profitable in the long term: In the video interview, the two experts point out that many insurers quickly and sweepingly take payment arrears as a reason to terminate a contract.
The dunning process provides a lot of potential opportunities for improvement with customers who have been using SAP FS-CD for some time," says Jochem Schültke, Solution Architect Insurance at SAP SE. (available in German)
"Some insurers use simple reminder procedures. A reminder is sent out in accordance with the German Insurance Contract Act (VVG) and at the same time notice of termination is given," Sascha Koch and Jochem Schültke report in unison from their respective business practices. Although such a reminder process is comprehensive and effective, it does not even begin to utilize the range of configurable collection processes available in the powerful SAP standard. Valuable customers are at risk of being lost: "In Germany, as in most countries, it takes much more effort to acquire a new customer than to retain an existing one," emphasizes Schültke.
Smart receivables management must respond to customer needs and also take into account emergency situations - in other words, business case outliers. This includes, for example, when customers experience short-term financial hardship such as the current Covid 19 pandemic. All of a sudden, many customers who were rated as good and solvent are exceptionally unable to meet their payment obligations in full or on time - for example, because they are working reduced hours or even unemployed.
"If insurers do not offer a dunning procedure that takes exceptional situations into account - with situational configuration options for the standard in collections and disbursements - this is likely to have a negative impact on business success," says SAP Solution Architect Schültke. Instead, customer-oriented and transparent dunning procedures should be part of the standard repertoire of insurance companies: Procedures that aim for clear customer orientation and the best possible customer experience. The SAP FS-CD standard customization options available in the dunning process help insurers achieve both goals: Insurance client insight and the means of discovering potential improvements.
How to configure dunning variants and procedures
In order to apply the appropriate dunning procedure, various parameters are used including:
- The dunning variant stored in the master data of the relationship between an insurance contract and the policyholder.
- The company claiming the premium or contribution
- The product group resulting from the open item
- Main and partial operation, both of which precisely characterize the receivable jointly
The dunning variant is of particular importance here. First, it can automatically determine a special dunning procedure. For example, this is primarily based on the customer group to which the policyholder belongs. Secondly, it is possible to switch automatically from a current dunning procedure to a specific follow-up dunning procedure. For this purpose, the dunning variant is changed.
As long as a current contractual relationship with an insurance company exists, the dunning procedure is governed by the German Insurance Contract Act (VVG). The VVG prescribes the deadlines in detail. However, an insurer may interpret these more generously in the interests of the customer. If there are still claims from the time of the active contract after termination of an insurance policy, the legal basis changes: The German Civil Code (BGB) applies. The BGB allows significantly more freedom than the VVG with regard to deadlines.
For the system configuration in SAP FS-CD, a dunning variant can be initially entered and changed in the master data of an insurance object/business partner relationship (i.e., an insurance relationship). (This is the MVARI data field in the DIMAIOBPAR table for the insurance object relationship). The dunning variant can be created and changed manually, by the corresponding inventory system, or by means of business logic (for example, via Business Data Toolset) in SAP FS-CD.
If a dunning procedure runs in SAP FS-CD while the dunning variant in an insurance relationship changes accordingly, the system automatically makes a corresponding entry. It is noted in the so-called dunning trigger table "VKKTRIMA". During the dunning run (transaction VPVC, usually executed daily as a mass activity), a check is performed to determine whether the dunning procedure is terminated. By default, this is the case when the dunning variant is changed. However, to define a different behavior, a customer-specific function module can be implemented with a designated time.
A targeted change from dunning variant X to variant Y is also possible: a corresponding dunning activity is considered and implemented. If this option is actually used, the previous dunning variant should be entered in a customer-specific additional field within the insurance relationship master data. This is because insurance companies can fall back on it if necessary. In this way, the transition from a VVG dunning procedure to a BGB dunning procedure can be automated - especially after the termination of an insurance contract. Remaining open claims are then taken into account by the dunning program with the appropriate dunning procedure. If the insurance contract later becomes effective again, the corresponding dunning variant can also be determined and entered automatically. In order to take other differences into account, such as the status of VIP customers or partner sales, insurers can differentiate dunning variants even more specifically according to this principle.
Example: How dunning processes can be efficiently designed for private health insurers
The example of substitutive health insurance (full private health insurance) also shows how efficient the dunning process can be. According to the VVG, regular termination is not possible here. The legal basis is not §38 (default in payment of subsequent premium), but §192 (contract-typical services of the insurer). In addition, the deadlines are more rigid and binding than in other lines of business.
If the policyholder continuously fails to pay their premiums, the tariff must be changed to the so-called "emergency tariff". On this basis, an automatic change of the dunning variant can be implemented. After all, this is part of the insurance relationship master data. This automatically ends the current dunning procedure. An "emergency dunning procedure" is then seamlessly continued. In this case, the processes regularly check and track open receivables according to the configured specifications. And the previous "reminders" and "dunning letters" are now replaced by "payment requests" generated in the system.
Dunning activities also help insurers to hand over receivables to an external collection service provider. In this way, pre-litigation and litigation dunning procedures can be triggered. Even in this phase, the insurance contract can be resumed and future overdue premiums or contributions can be reminded in a regular manner. However, if a new payment default occurs, the original dunning variant comes into play again and the dunning procedure starts again.
– A strategy decision
Priority is given to existing customer management
If customers differ significantly in their payment behavior, the insurance company must decide for itself whether to treat all insured persons equally when issuing reminders. More elegant, however, are differentiated dunning variants: If, for example, the policyholders have paid their premiums or contributions on time and in full in the past, differentiating variants will suit them.
However, it may also be appropriate to be less accommodating in certain cases: when customers regularly pay too late or too little over a longer period of time, even though there are no financial bottlenecks. For this reason, the SAP FS-CD module allows different dunning procedures to be configured in parallel as standard. The dunning procedures are similar. However, they differ in terms of levels, deadlines, tolerance days and dunning activities - depending on the customer or contract classification as defined by the insurance company.
In this way, the reminder control really does justice to the policyholders. For VIP customers, for example, telephone list entries can be generated instead of automated correspondence. Personal calls provide an opportunity to strengthen the loyalty of this special customer base by addressing them personally.
Rate plans and collection strategy boost profitability
Another configuration tool in SAP FS-CD is scoring: "Instead of a general dunning procedure, it makes sense to use credit rating score," emphasizes Jochem Schültke, Solution Architect Insurance at SAP: "Similar to driver's license points for traffic offenses, negative payment behavior can be assessed (for example, based on historical returns and dunning procedures). This makes it clear whether a customer is experiencing payment difficulties for the first time - or whether the regular premium arrears are a "permanent issue". Because that's where the customer attitude really comes into play: A certain clientele is accustomed to paying only with the first or second reminder - even though timely payment would have been possible.
Whatever the personal reason may be, the dunning procedure can already respond to corresponding credit rating aspects in the SAP standard. And just like with driving license points, the infractions expire after some time.
Payment behavior can be tracked using credit rating scores from business partners in the SAP FS-CD module. Many insurance companies do not yet use this option, says Jochem Schültke, Solution Architect Insurance at SAP:
"Often because the individual lines of business and insurance branches cannot agree on a common rating scheme."
Smart receivables and customer management includes, among other things, an installment plan offering. "The installment plan functionality is still often smiled at," Schültke and Koch know. But gradually a reevaluation is taking place in receivables management, because Installment plans increase the profitability of insurers, agencies and brokers. Installment plans allow arrears to be settled without damaging the customer relationship. In addition, the SAP standard offers the automated "out of the box" function. Instead of clerks keeping special payment agreements in an Excel spreadsheet and entering resubmissions in a digital calendar, the rule now applies: If customers do not pay the agreed installments, the original dunning procedure continues automatically.
Extend the standard through configurations
Customer-oriented receivables management can be efficiently implemented in the insurance industry with the help of intelligent, configurable dunning procedures. Well thought-out configurations contribute to highly automated arrears processing. At the same time, they take into account key differentiation features such as customizing the SAP standard with SAP FS-CD. This helps to exploit the full potential with desired dunning levels, deadlines and activities in the dunning procedure determination, allowing companies to keep an eye on entrepreneurial value creation. If organizations put their policyholders in the business focus, this strengthens the customer relationship - for long-term profitability.
"Optimized dunning procedures differ on a customer-by-customer basis for stages, deadlines, tolerance days and dunning activities - according to a customer or contract classification defined by the insurance company."