13 minute read
Got your back
Stress test: Every failed payment costs the industry £50 in back-office processing
Got your back Apply Financial’s straight-through processing tools have helped insurers in the West save millions in back-office costs while simultaneously burnishing their reputation with customers. Now CEO and Founder Mark Bradbury is looking East
While big strides have been made in digitally revolutionising a sector notoriously slow at innovating, much of the emphasis so far has been on insurance product development and user experience. Telematics devices in vehicles to record and analyse data and reward less risky drivers with reduced ‘good behaviour’ premiums; embedding insurance in services offered by digital partners; providing users with more seamless and tailored experiences, not to mention faster claims resolution – no more sitting on the phone for hours waiting to get through to your insurance company – all dominate the insurtech agenda.
But while such innovations undoubtedly enhance an insurance company’s value proposition for customers in an era of weak or even negative growth and intense profit pressures, they don’t address where the biggest cost drains are. Many of these can be found in the middle or back office and one of the key issues is that of failed payments: the black hole of reconciliations where straight-through processing dreams go to die.
Payments processor and validation software provider Apply Financial estimates that every payment that fails to validate can cost an organisation – be it a financial institution, corporate or otherwise – £50 in charges, resending costs, time spent rectifying the problem and exchange rate fluctuations (in the case of crossborder payments). For a large insurer this can add up to a lot of manual processing hours and a bruising impact on the bottom line. In fact, Apply Financial estimates that an insurer making eight failed payments a day will spend £100k a year fixing them.
“The issue with a failed direct debit, in any company – not just insurance companies – is that you have to resubmit,” says Apply Financial’s CEO and founder Mark Bradbury, “and that’s a very costly process; it takes up time.”
Some of it’s down to fat-finger syndrome – wrongly keyed-in digits on the part of the insurer or the customer; a good proportion is due to oversight – the customer failing to update his/her information held on file by the insurer. Apply Financial’s key offering to clients is its Validate software that verifies bank payments through an application programme interface (API) plugged into a customer’s payment system at the front end. Interrogating world-class, virgin data sourced from the originating providers, the Cloud-based service uses algorithms to identify, analyse and validate payment data by crossreferencing account numbers, branch codes, payment purpose codes, holiday dates and many more data requirements, country by country and bank by bank.
Validate can also generate IBANs (international bank account numbers) and BICs (business identification codes) from domestic account details and check a complete MT103 for SWIFT gpi payments, including the correspondent bank details. If Validate identifies a problem, it gives the insurer the opportunity to stop a transaction before the system spits it out, the hassle and costs of a failed payment or collection. Meanwhile, the Validate Data Manager makes continual background sweeps of information and alerts the insurance company to changes in relevant client data. The company can, in turn, notify the customer to update the information in advance of any mismatches occurring.
resources to invest in transformation and product innovation programmes, like those bots, clever apps and microinsurance services. By reducing the hassle and costs of fixing failed disbursements and collections, Apply Financial’s Validate helps clients achieve that aim. It also improves the insurer’s reputation in its clients’ eyes – especially around the emotionally sensitive time of a claim.
Validate’s application is not limited to direct debits, of course. Although they remain the legacy industry’s go-to payment method, Apply Financial is increasingly working with providers committed to instant payments, which don’t afford the insurer the luxury of sometimes T+3 and low penetration by insurance products. London-based Apply Financial, which was founded in 2010, already counts major financial organisations among its clients, including high street banks HSBC and Barclays, credit card provider American Express and insurers in the US, Ireland, the UK and Europe, such as AXA. In addition to offering them domestic and international account and payment validation services in more than 170 countries, Apply Financial can also help clients with compliance around the world by checking against up-to-date global payment rules. What it can’t do (yet) is identify whether there’s any money in the account. “That’s a whole different application set,” laughs Bradbury
Digital dividends: Investment in straight-through processing pays off
“We have a database of 66 million data records – which has about 7,000 changes a day around the world of banking,” explains Bradbury, illustrating the scale of the reconciliation task. Apply Financial says clients have so far saved more than £500million in operational costs for processing £1trillion of payments by using its payment validation software. It might not be as sexy as a bot broker or microinsurance for today’s sharing economy but, given the current global outlook, it’s an investment likely to float any CFO’s boat.
EY’s 2020 Global Insurance Outlook identified achieving operational excellence and cost efficiency as top among its six key themes and priorities for the sector from now through to 2022. It went so far as to describe cost optimisation as ‘critical’, because without it, insurers will struggle to realise one of the other key goals: to free
processing time to spot an error and fix it. If anything, in that scenario Validate is an even more valuable tool, and it makes the company’s recent expansion into the Far East, where small-value, same-day settlements are increasingly common, a no-brainer. Indeed, EY’s 2020 Asia-Pacific Insurance Outlook predicts the region could hold the key to the industry’s future, thanks to being home to a third of the world’s population, some of the fastest-growing economies, rapidly-expanding middle class groups We have a database of 66 million data records – which has about 7,000 changes a day around the world of banking
– although he doesn’t entirely rule out such services being possible in future. “We might be able to, eventually, if open banking allows us to,” he says.
So far, Apply Financial has worked direct with insurers, rather than the industry’s intermediaries, such as banks. “Although I’m not saying that won’t change, or they won’t come to us and say ‘we want [you] to look at our insurance side as well’,” observes Bradbury.
With insurance steeped in back-office processes that are high volume, repetitive and time-consuming, Apply Financial with its focus on artificial intelligence, machine learning and open (API) models that can free up capacity at enterprise level while improving customer experience and minimise operational risks, looks an obvious fit. As businesses look to revolutionise the front end, it must be good to know someone’s got their back.
THE FUTURE OF INSURANCE: EMBRACING DIGITAL TRANSFORMATION
1ST & 2 ND JULY 2020 – OLYMPIA, LONDON
1000+ Attendees
200 Visionary Speakers
5 Conference Tracks
30 Exhibitors
VISIONARY SPEAKERS
SIMON CLAYDEN Chief Operating Officer (Technology), AXA
SAM WHITE, CEO Pukka Insure
KETAN MOTWANI Director - Strategic Change Portfolio, Aon UK
CHRISTOF TREMP Head Digital Transformation - Distribution, Generali
STEVE TUNSTALL CEO & Co-Founder, Inzsure
JAMES BIRCH Head of Innovation, Brit Insurance
ADAM WICKENS Senior Vice President, Marsh
DAVID GERMAIN Group Chief Information Officer, RSA Group
insurancetransformationsummit.com
REVERSEGEAR REVERSEGEAR As CEO of Honcho, Gavin Sewell is helping to steer a new insurance distribution model that could drive much-needed value into the market for both consumers and providers... Gavin Sewell, who goes (for obvious reasons) by the title of Head Honcho, knows exactly the number of consumers signed up to his new platform: 13,300, according to his daily report. Not enormous, but not bad considering it entered one of the most fiercely contested general insurance markets just six months ago and with minimal marketing spend.
Of those users, he tells me, 8,700 had run, between them, 17,000 reverse auctions in which insurers bid for their business; 1,600 liked what they saw and clicked through to the vendor’s website, and – according to the panel of currently 14 insurers signed up to the Honcho marketplace – a high proportion of them converted to sales. They reckon the conversion rate is 13 times better, in fact, than they get from the platforms that have come to dominate digital motor insurance: the price comparison websites (PCWs), while the cost of acquisition for each of those drivers is considerably lower. Honcho charges insurers just £1 to access the same customer enquiring about the same risk over a 28-day period. There is no commission and every participant gets to see exactly what the others are offering at what price.
And, for Honcho, which positions itself as a consumer champion brand, it’s all about transparency. things that younger drivers in particular use PCWs for is researching the likely cost of insurance before they buy a car to see if they can afford the running costs: they have no intention of buying the policy, but it generates vast amounts of quote traffic. We require the customer to create an account with us, including a known registration plate for the car – and they are unlikely to do that unless they are going to go on to buy insurance.”
Once fed all the relevant information – which includes using optical character recognition to scan drivers’ licences – the free app runs three auction rounds within 30 seconds to come up with policies and prices best matched to the policyholder. Compared to PCWs, users are presented with a much shorter list of potential insurers to choose from because ‘bidders’ are unlikely to pay to enter the auction if they can’t match the price and policy needs. With a shorter list, the consumer isn’t overwhelmed by choice and the click-through rate is higher. Software as a service While general insurers are super-sensitive to value being sucked out of the distribution chain in what’s shaping up to be a negative growth environment in the UK the Financial Conduct Authority consumer watchdog has already laid bare its concerns over how pricing behaviours are working against consumers. Its final report, following a sharply worded letter to insurance chiefs in 2018 and interim findings published last autumn, is expected soon. PCWs might have made pricing more opaque, but by throwing the same aggregator mechanism into reverse, Honcho hopes to demonstrate that insurtech can help the market regulate itself and work effectively for all participants. The magic bullet is data. “Price comparison sites dominate the market and, of course, offer convenience. They do not offer a lot of competitive advantage for the consumer,” says Sewell, CEO of the Durham-based startup that closed its second fundraise on Crowdcube in February at £1.2million. In the same month, it came runner-up in the New and Noteworthy category of the annual Pulse Awards run by consultancy 11:FS, and went beyond its initial target market of drivers up to the age of 25 for the first time by adding three new insurance providers specialising in niche motor products.
Its game plan is to double-down on growing motor insurance traffic over the platform during the next 12 months through a combination of business-toconsumer and business-to-business channels. The ink is still wet on the first of those marketplace partnerships. But the concept was never limited to motor. “From an insurer’s perspective, Honcho allows them to go after a consumer with a product that responds to their requirements in an environment in which they can see how others are responding to that risk and then flex those products during the auction process – that is utterly new and generates data insurers have never seen before,” says Sewell.
“It’s not all about the bottomline price. What we say to the consumer is ‘what do you want from the product and we will help you gather those various moving parts. We will tell you whether the policy responds to your needs or not ‘. That’s the consumer competition angle. From the perspective of the insurer, we want to move away from a quote imperative and be much more data-driven – that data, in terms of how a market is pricing a product, is very valuable to an insurer.
“There is good reason why we convert better to sales,” he adds. “Firstly, we discourage price research. One of the
Currently backed by Maven Investment Partners, multiple venture capitalists (VC), angel investors and the crowd, Sewell is preparing for another, this time pure VC investment round with a minimum £3million target for Q1 2021 – around the same time as Honcho is forecast to begin to turn a unit profit. Meanwhile, some of the newly-raised cash will go into growing the Honcho technology team that built the proprietary auction software and third-party connectivity that underpins the Honcho user experience (UX). It will also take the front-end development, which won such praise from 11:FS, in-house.
“Honcho is, in effect, pulling together some of the convenience of price comparison sites with the price efficiency you see in the capital markets’ electronic exchanges. But the insurance industry is poorly standardised by comparison,” says Sewell. “There is a whole lot of plumbing between PCWs, insurers and brokers.” The ‘plumbers’ looking after all this pipework are the specialist insurance software houses. Honcho is partnered with three – CDL, SSP and Quote the Market – to, in his words, ‘leverage what is already there for our marketplace model’. “An insurer using any of those systems can access Honcho,” says Sewell. “And, if
they are not operating on one of those or, for whatever reason, do not want to use it, we have our own application programming interfaces (APIs) – or we’ll build what they want with our inhouse team.”
That puts Honcho squarely in the software as a service market, further strengthening its B2B proposition, which falls into three categories: – affiliate, affinity and white label partnerships. That unlocks a whole host of possible marketplace tie-ups, with everyone from digital-led banks to large corporates offering value-add to users and corresponding market data for auction participants. New van, learner and motorcycle product lines will be added this year as Honcho increases its motor insurance panel to more than 40 and improves the UX still further with feedback from its near 700 investors who have been involved in the app’s product design and testing. It’s already specced out a home and contents insurance customer journey. Mortgages, lending and health insurance are all on a more distant horizon. But, for now, Sewell says, they’ll keep their eyes firmly on the road.
