Sascha Koch: „Preserving the portfolio is a success factor in collections and disbursements“

– COLLECTION AND DISBURSEMENT

What you should look out for in customer-specific dunning procedures

Conservation as a success factor in debt collection
– Part 1/2

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Abstract

To be successful in the market, you need loyal customers

Collection and Disbursement is therefore one of the most important tasks in portfolio maintenance. Rigid dunning procedures, whose only expectation is reliably handle collection processes, have long since ceased to meet requirements: A modern collection system must be measured by its ability to respond precisely to customer needs.

However, the issue of dunning procedures and debt collection often gives rise to a business conflict. On the one hand, contributions should be paid within the legal payment period so as not to jeopardize the company’s own sales. On the other hand, one does not want to damage the business relationship should the previously loyal customer run into payment difficulties at short notice.

Existing customers are the new currency

Smart receivables management is therefore enormously important: It enables the dunning process to adapt to respective customer needs. With the SAP FS-CD module, SAP provides a system that precisely meets this expectation.

However, the expectations of the program are different for each insurance company, because: Dunning procedures are practiced differently – and the configuration options in the dunning procedure are also often underestimated. In addition, further options are often not asked for.

This is why dunning procedures need to be put to the test

For example, some insurers send out a reminder letter in accordance with the German Insurance Contract Act (VVG) with the threat of termination if only one payment is overdue. At first glance, this is understandable in view of the process. But this approach does not fully exploit the potential offered by the SAP standard in terms of customer loyalty.

With SAP FS-CD, customers can also be addressed when it comes to open contributions

Presumably, no customer will choose insurance A or B on the basis of a special reminder procedure. Likewise, the question is justified as to why insurers should engage in strategic considerations here – especially since the legal framework of the VVG is narrowly defined. The answer, however, is quite simple: because it is a matter of preserving the portfolio as a success factor in collections and disbursements. In this context, it is far less expensive to retain loyal customers than to generate new ones.

Dunning procedures must be traceable

Key questions for the dunning process

1. How should reminders be sen?

2. What is the tone of the reminder?

3. What is the reminder schedule?

4. What is the follow-up?

5. Who is the customer? (VIP customer, company, etc.)

6. How long is the customer insured in the company?

7. Which product are we talking about?

8. How is the payment morale?

9. Other company-specific factors

Insurance companies offer products and contracts that are economical with low risk due to high premiums. Nevertheless, risks exist: A customer may be annoyed by a short, customer-unfriendly reminder procedure. In the event of further reminder incidents, customer loyalty may be impacted. A customer may be annoyed by a short, customer-unfriendly reminder procedure. In the event of further reminder incidents, customer loyalty may be impacted; the customer could change providers and cancel the contract.

Minimize risks and think about customer loyalty

A customer in arrears is not necessarily a “bad” customer. Even long-standing, reliable accounts can find themselves in financial distress due to market changes or natural events such as the Covid 19 pandemic. In times of the Covid 19 pandemic, the sometimes existential consequences for companies can be seen in the levels of short-time work, job losses and liquidity shortages.

A quick dunning process, including termination, could result in the insurer losing a valuable existing customer. In today’s world, any platform, any point of contact – be it verbal or online – has the potential to affect a company’s reputation. Control over this is not solely in the hands of the company, even in collections. Nevertheless, there are ways to minimize risks.

Exemption from performance in dunning proceedings

According to the legal situation, after the expiry of the period of 14 days of the reminder according to §38, the default has occurred and the insurer is then no longer obliged to pay customers. In combination with the implementation of the exemption from benefits, for example, a reminder procedure can run for half a year or longer before a termination occurs. The manual effort does not increase, but premium income does. And in the best case, the contract can continue to exist.

If the exemption from benefits, which was triggered by the dunning procedure, also became known to the claims system and thus prevents a claim, there is no time pressure for the property owner’s insurance (GEV) to cancel a contract. Financial losses can now no longer occur. Even if the customer now settles his arrears, the exemption from benefits remains in force until the value date. In this way, it is also possible to check retroactively whether a loss has to be paid.

Small technical enhancements for great functional benefits - using the example of the "telephone list"

The “telephone list” is an excellent example of smart collection and disbursement. In SAP standard, an entry is automatically set in the info container when the dunning level category “freedom from benefits” is selected. Alternatively, the freedom from performance can also be stored in customer-specific tables via a dunning activity, which the claims system checks for.

Insurers thus accommodate valuable customers who have fallen into premium arrears on the receivables side. With their own reminder procedure, it is possible to contact these customers in advance by telephone. The declared aim is to maintain customer loyalty through personal contact. Normally, the customers concerned would receive a dunning block. Since a dunning block prevents an automatic reminder, the information about the telephone list could alert the processing department to the non-payment.

The “Phone list” functionality allows clerks to maintain and manage the status of customer phone calls. Clarification cases are created as entries in the “Phone list” from a defined dunning procedure or dunning level (such as property insurance line of business, first dunning level) A clerk can select individual entries and note the intermediate status or the processing result in a dialog. According to the processing progress, the status changes, for example, from “in process” to “completed”.

Precise control of dunning procedures - for example with the help of an installment agreement

If a customer is offered a timely installment agreement, insurers create grateful customers and thus promote long-term customer loyalty.

In contrast, both for mandatory insurance policies that are based on a legal foundation (Ex. motor vehicle liability) and for policies that require a secured creditor for credit protection, a more stringent dunning procedure can lead to the customer settling his payment much more quickly.

Functionally and technically, SAP FS-CD supports insurance companies in adapting to their needs: Different dunning variants, main and sub-transactions, and product groups in dunning procedure determination can be used to precisely control the various dunning procedures – provided that the policy system supplies the necessary information. The specifications in function modules are then only minimal. And this is just one example of the many smart functionalities and clever customization options that can be mapped in the SAP standard without time-consuming configurations.

Conclusion

How the strength of internal collection processes is demonstrated

Policy preservation is now receiving more and more attention in collections and disbursements. Customers do not choose insurance companies based on their strength of receivables management. But when there are problems with a payment in arrears, an Insurer’s collection process has potential to affect the relationship. It is demonstrated by a precise technical collection system that takes into account the current and individual customer situation. The well-considered use of dunning or reminder activities can significantly reduce the amount of work involved in receivables management. Dunning procedures can be influenced by the targeted use of business-related blocks, without the need to specify a point in time. However, a dunning activity to write off charges, provided the dunning amount is cleared, also significantly reduces the manual clarification effort.

Outlook

Outlook for the second episode

In the second installment of this two-part series, “Conservation as a Success Factor in Debt Collection,” you will read why customer-specific dunning is important and the role brokers play here.

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