From obligation to freestyle in policy preservation
Actively designing a dunning process (the obligation) has already been explained by author Sascha Koch in his article "Payment practice makes a difference in the dunning process"; in this interview, he follows up: The IKOR expert explains freestyle: How insurers fill the alternative to dunning by dunning procedure with life via dunning by Collection strategy.
In the USA, the preferred dunning procedure is a "Collection strategy", which is based on individual, specific indicators. Germany, on the other hand, prefers a narrow "dunning by dunning” procedure. Why is that?
Sascha Koch: This is due to German insurance market regulations, the German Insurance Contract Act VVG. This law defines the legal framework. Arrear’s processing describes exactly what has to happen and in what order before an insurance company actually has to give notice of termination in the event of non-payment of premiums. This is precisely what the SAP standard system maps out from the outset: Dunning according to dunning procedures is carried out in compliance with the law, within the appropriate time frame and with little effort.
Can we nevertheless speak of a dunning system in the insurance industry that is more rigid than individually oriented?
Koch: Not quite. Anyone who knows how to program can also adapt the powerful SAP standard to individual peculiarities. However, the dunning logic becomes increasingly opaque as complexity increases. Nevertheless, the Collection strategy can be an exciting alternative for departments with an affinity for technology. It allows for more individual checks, but is not inherently VVG-compliant. Changing this to make the Collection strategy legally compliant would mean additional effort.
Sascha Koch is Crew Lead Subledger Accounting and has the technical leadership of the consultants in the area of subledger accounting - especially in the insurance environment with SAP FS-CD.
„An effective collection strategy requires a new mindset when it comes to engaging with customers in backlog processing“
How does a Collection strategy work?
Koch: The Collection strategy runs through a special set of rules. This is implemented with the SAP component BRF+. In order to combine complex checks in if-then logic, small check programs can be put together using drag and drop. The checks are implemented once by developers in functional modules. The department can then use these modules as desired and - depending on the rule - add new parameters.
All rules can be tracked and traced in Customizing.
What is the added value of a Collection strategy? Is it worth the effort?
How is this to be understood?
Koch: The significant individuality of clients rings with it new and evolving customer needs, including which issues people want addressed and what they expect from their insurance company and its products with the help of an effective Collection strategy and with manageable programming skills, Insurance departments can create highly individualized sets of rules. If, for example, a payment incident occurs, the specialist department can respond to the incident individually on the basis of its customer knowledge and answer the following questions:
- Is the customer in arrears for the first time?
- If yes, since when?
- How long has the customer been insured?
- How many policies does the customer have?
- What are the volumes per policy?
- How old is the customer?
- Where does the customer live?
The more questions that can be answered enable Insurance companies to provide better, individually tailored responses to their policyholders. However, SAP standard - without configuration - reaches its limits here at some point.
Is this the reason why many insurance companies treat their customers rigidly?
Koch: Exactly. For example, too little consideration is given to age - or to the contract structure. The possibility of offering different forms of communication is also hardly taken into account. The same applies to alternative payment methods.
Can you give us examples?
Koch: A customer who is more than 70 years old, lives in a rural, rather structurally weak area and is in arrears can be better supported with a tailored offer. If the customer can settle their debts via an alternative payment service such as Barzahlen.de/viacash at the local supermarket, the offer is better suited to their needs. It is more likely to appeal to customers in this segment than mobile payments.
Meanwhile, a 19-year-old who has insured his moped but can't pay his policy because of an overdrawn account needs to be addressed differently - presumably this is where we end up with mobile payments?
Koch: Exactly. Maybe he has a balance on PayPal or with the online payment provider Wise. Maybe there are friends or a grandparent who want to send him money via PayPal or another mobile provider so the teenager can pay his insurance premium.
What challenges do such target group differences pose for the payments models of insurance companies?
Koch: With the 70-year-old, insurers may be keeping a loyal customer who has held several insurance policies for decades and is exceptionally experiencing payment difficulties. The 19-year-old, however, is still at the beginning of the customer life cycle. Both groups of people need to be approached differently. However, both should have the same interest in retaining customers. Alternative payment methods - and with them the associated FinTechs - are also bringing a breath of fresh air to the finance and insurance industries.
Against the backdrop of the VVG and the General Data Protection Regulation (DSGVO), will the Collection strategy concept become a trend here in Germany?
Koch: Insurance companies should not be deterred from including this strategic opportunity in their portfolios. We all know how difficult it is today to retain valuable customers. The more insurers engage with existing customers, the more opportunities they have to maintain a trusted customer relationship. This includes personal contact. Despite this, the standard SAP function "Phone List" is still hardly used. Here, orders for customer contact can be managed, documented or forwarded to a CRM system. In conjunction with the Collection strategy, it is possible to identify those defaulting customers for whom personal contact is most effective. The goal is to ensure that they pay their policy and remain loyal to the insurance company as existing customers. There may even be an upselling opportunity.
Last but not least: More and more FinTech start-ups are competing with traditional insurance companies. How do insurers succeed in positioning themselves in a more modern way?
Koch: The number of possibilities is huge. With regard to collection processes and, in particular, arrears processing, I see the greatest need for action in communication. For example, arrears processing, whether through a Collection strategy or classic dunning process, can send push messages via a customer app. The app then warns a customer that his or her insurance coverage is at risk or that a vehicle immobilization is imminent. If the customer responds, he can use the chat function to directly provide new bank details, pay via PayPal or conclude an installment plan agreement.