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Payment behaviour makes a difference in the dunning process
Conservation as a success factor in debt collection – Part 2/2
Rule-based dunning also benefits the external insurance sales force
Most insurance companies also work with largely independent brokers. Both sides have a vested interest in ensuring that the customer meets his or her payment obligations in case the customer is in default. Collection failures affect insurance companies and brokers alike. While the broker must take the opportunity to get in touch with the defaulting customer, the insurer must set up a customer-specific and rule-based dunning procedure. Brokers receive their commission as soon as insured persons pay their premiums. For an acquisition commission, the first insurance premium must be paid on time. Additionally, some insurance companies pay the broker a time commission on life insurance policies of six or more years. In the event of non-payment, the broker risks losing the commission payments.
– Fast Lane
In this article you will learn:
Why insurers must inform brokers about collection disruptions
The Industry Institute for Process Optimization (BiPRO.e.V.) refers to all events that do not lead to payments as a collection incident. This includes a dunning procedure within SAP infrastructure for collections and disbursements.
If the insurance company has a collection problem, it should inform the broker about it. What's more, if it fails to do so, the insurance company may not withhold the broker's commission. Even if a contract is no longer commission-relevant, knowledge of a collection error can be important for the broker. This knowledge enables him to contact his customers and, if necessary, make product adjustments.
Why payment morale makes a difference in the dunning process
A collection incident can take place in the dunning procedure via a dunning activity with an entry in the info container. The follow-up process can be controlled by a BiPRO server. Other communication channels, such as an automatic e-mail or further correspondence, are also possible in principle.
A competitive advantage arises when an insurance company can offer the broker a convenient way. In addition to the broker's commission, fast and convenient processing is another sales criterion for brokers. It is equally advantageous if the broker has a direct and personal relationship with the customer and can act on the customer’s behalf in the event of late payment.
Not every customer who is in arrears has a poor payment record. Even long-standing and reliable customers can find themselves in financial distress. Consistent satisfactory payment behavior can be rewarded with a benevolent dunning procedure. Long-term customer loyalty increases if the insurance company is accommodating in emergency situations.
On the other hand, some customers repeatedly fall behind with their payments. They regularly receive reminders or dunning letters, and yet do not pay their premiums until shortly before the deadline set.
How customers can be assessed in a more differentiated way using a creditworthiness tool
The "creditworthiness" functionality can be configured in SAP standard. This enables insurance companies to assess their customers in a more differentiated manner: With each returned debit note and each dunning level, the number of creditworthiness points of the customer increases. These points expire partially or completely after a period defined by the customer.
In this way, creditworthiness can be checked in the proposal run and the dunning procedure can be changed or the "reminder" dunning step can be skipped. IKOR already offers a suitable add-on in the SAP FS CD module.
Track legal bases automatically
If, despite all efforts, arrears cannot be collected and the contract is cancelled, the legal basis shifts. In a BGB dunning procedure, the insurer can attempt to collect the outstanding premiums. This can be implemented either by means of a dunning variant set after a contract cancellation or by means of the insurer's own dunning stages after the cancellation.
In the normal dunning procedure according to VVG or BGB, it is possible to involve an external collection agency. Here, too, SAP FS-CD offers a standard functionality that carries out this submission in the dunning procedure. The associated process can ensure that legal expenses are manageable. If this dunning level is marked as optional, it is possible to skip this level for small amounts. If all customer-oriented activities have not resulted in the customer settling the outstanding receivables, the last option is to write them off of the insurance company’s books by means of a dunning activity.
A hitherto little-known function in SAP standard is the dedicated transaction program "Collection History". This function provides clerks with a comprehensive view of all events - such as payments, dunning correspondence, collection submissions and installment plans - a central view of a policyholder's contract.
Insurers have the chance to shape their view of customers
Dunning with SAP FS-CD offers numerous possibilities - especially the chance to create a view of the customer. Here, the account balance and the dunning history can be used.
Review of the first part
In the first installment of this two-part series, "Conservation as a Success Factor in Debt Collection," you will read what a modern debt collection system has to measure up to and how important customer needs are in this regard.
„Long-term customer loyalty increases when the insurance company is accommodating in emergency situations“