How insurance payments are costing you customers (and what to do about it)

The research is clear on two things: flexibility matters, and security matters more. 69% of consumers say a choice of flexible payment methods is important when choosing an insurance premium. 62% say being offered a wider range of payment methods would positively influence their choice of provider.

That is not a marginal preference. That is a majority of your potential customers making provider decisions based on how you take money. The most popular payment methods, in order:

• Direct Debit: 57% (the clear preference for spreading annual premiums)
• Online card payment: 38%
• Over the phone: 18%
• Open Banking: 17%
• Mobile wallet: 11%

The generational split on Open Banking is worth noting. Among 16 to 34-year-olds, roughly one in four would choose to pay via Open Banking. Among the over-55s, that drops to 13%. A payment strategy that ignores Open Banking is already out of step with younger policyholders.

When the research asked consumers about bad payment experiences in the last two years, the findings were stark. Of those who had experienced a problem paying for insurance:

• 39% said payments continued without their knowledge
• 35% had trouble cancelling payments
• 33% were overcharged
• 33% had payments fail to go through

Each of these is a churn event waiting to happen. A failed payment leaves a customer without cover. An unexpected charge triggers a complaint. Difficulty cancelling erodes trust at exactly the moment a customer is deciding whether to renew. Poor payment processes do not just frustrate customers. They undo the work of every other team in the business.

Rising inflation has pushed repair costs up and squeezed household budgets simultaneously. The research shows the consequences.

35% of consumers say the ability to spread payments is the most important factor when paying for insurance. 43% of those looking to reduce insurance costs have cancelled policies entirely rather than seek a cheaper alternative. Travel insurance (35%) and pet insurance (30%) are the policies most likely to be cancelled due to affordability concerns, followed by health insurance (28%) and life insurance (26%). 

Customers who previously paid annually in full are moving to monthly instalments. That brings a higher risk of late or missed payments, and puts greater pressure on your collections and Direct Debit processes. The insurers who will retain these customers are the ones who make it easy to pay in the way that works for the customer's current financial situation, not the way that is most convenient for the insurer's back office.

42% of consumers say their payment being handled in a safe and secure way is the most important factor when paying for an insurance policy.

That places security above spreading payments (35%), choice of payment methods (29%), and even speaking to an agent (28%).

This matters because insurers hold more sensitive personal data than almost any other consumer-facing business. Addresses, dates of birth, health history, financial status, sometimes signatures. A data breach does not just trigger an FCA fine. It destroys the trust that insurance, by its nature, depends on.

Between April and June 2023, complaints about buildings, car and motorcycle insurance reached a five-year high, according to the Financial Ombudsman. Fraud and scam complaints across financial services increased by 39% in Q2 2023 compared to Q1.

Cyber criminals are not getting less sophisticated. And the reputational cost of a breach, lost customers, regulatory action, and lasting damage to brand credibility, is far higher than the cost of getting payment security right in the first place.

The instinct to simplify is understandable. One payment method, one process, one system. But the research shows that customers do not all want the same thing, and the gap between what different groups want is wide. 27% of the UK population, around 14 million people, are classed as digitally excluded. They cannot or will not complete transactions online. For them, phone payments are not a legacy option. They are the only option.

At the same time, younger customers expect Open Banking, mobile wallets, and frictionless digital journeys. A straightforward, low-cost policy can be bought online with no human interaction. A complex or unusual policy, covering a challenging health condition or a specialist asset, often requires a detailed conversation with an agent.

The answer is not to pick one channel and serve it well. It is to build a system that can flex across all of them, deploying contact centre staff to the cases that need human judgement while automating everything that does not.18% of consumers still prefer to pay over the phone. That is not a small number. Removing that option to cut costs is not a simplification. It is a decision to lose those customers.

The research points to five capabilities that insurers need to have in place.

Direct Debit with automated retry

Direct Debit is the most popular payment method for insurance premiums. A good Direct Debit provider retries failed payments automatically, reducing unnecessary income interruption and avoiding the customer service cost of chasing missed payments manually.

Open Banking

Open Banking speeds up payments and provides real-time visibility of a customer's financial position, which is increasingly useful for credit risk assessment. It also widens access for customers who do not have, or struggle to use, a bank card.

Secure phone payments

Customers who pay by phone should not have to read card details aloud where they can be overheard. Technology-assisted phone payment solutions allow agents to take payments to PCI DSS standard without the customer's card details passing through the contact centre environment.

Branded payment pages

When a customer is redirected to a third-party payment page with unfamiliar branding, trust drops at the worst possible moment. Mid-sized insurers can use payment software with customisable payment pages to keep their brand front and centre throughout the transaction.

Automated compliance PCI DSS, GDPR, KYC, AML checks.

These are not optional, and manual compliance processes are slow, expensive, and error-prone. Automated workflows that flag suspicious cases through risk analysis tools allow legitimate customers to complete transactions quickly while protecting the business from fraud and regulatory risk.

One fraud pattern specific to insurance deserves attention. Money launderers make large payments for expensive policies using illicit funds, then cancel the policy in exchange for a cash refund, converting dirty money into clean funds.

Insurers need payment systems with built-in fraud detection, identity verification, and AML capabilities. Not as a bolt-on, but as part of the core payment process.

Outdated payment software and manual processes create the vulnerabilities that make this possible. Automated compliance does not just reduce risk. It speeds up the process for legitimate customers, which improves the experience for the vast majority while protecting against the minority who intend harm.

The framing that limits most insurers is treating payments as a back-office function. Something that happens after the sale, managed by operations, invisible to marketing. The research suggests a different view. Payments are a customer experience. They are a retention tool. They are a competitive differentiator.

62% of consumers say a wider choice of payment methods would positively influence their choice of provider. That is a marketing claim. It belongs in the conversation about how insurers attract and retain customers, not just how they process transactions.

Integrating payment data with sales and marketing systems creates opportunities to increase customer lifetime value. A customer who pays monthly has more touchpoints than one who pays annually. Each touchpoint is an opportunity to cross-sell, to check in, to build the relationship that makes renewal the default rather than the exception.

For insurers reviewing their payment infrastructure, the priority order from the research is clear.

Start with security. Four in ten customers say it is their top concern. If your payment processes are not PCI DSS compliant and FCA regulated, that is the first thing to fix.

Then address flexibility. Direct Debit, online card, phone, and Open Banking cover the majority of customer preferences. Adding mobile wallet capability extends reach to younger policyholders.

Then look at the experience. Branded payment pages, automated retry on failed Direct Debits, secure phone payment technology, and IVR for contact centre management. These are the details that determine whether a payment process builds trust or erodes it.

The insurers who get this right will not just process payments more efficiently. They will retain more customers, attract more customers, and build the kind of trust that makes price comparison sites less relevant.