When I worked at an insurance agency as a young man, I found an envelope slid under the office door one morning. Inside was a check intended as a premium payment. 

I soon learned an important lesson about accepting payments in the insurance industry that is even more important as more customers start paying online due to the coronavirus pandemic. 

The check was clearly meant for us. It was made out to our agency. But nobody in the agency recognized the name, and we couldn’t find any policies on it. 

This created the potential for an E&O claim – the industry term for insurance problems involving errors and omissions with payment. If we cashed that check, we could be in a for a mess of trouble. My bosses warned me not to do anything with it until we learned what it was for. 

These days, insurance agencies are almost universally accepting payments online. And with millions of Americans staying at home to stop the spread of Covid-19, even those who were reluctant to pay their bills online are going to make the shift.

That means there are a whole lot of people who could be sliding envelopes under that virtual door, and if your agency is automatically accepting online payments, you’re headed for a lot of E&O claims down the road. 

But when software creates a problem, it can also usually solve it. With the right changes to your online payment processing, you can avoid these kinds of E&O claims with something called conditional payments.

Here’s how it works. 

E&O claims happen when an insurance company incorrectly accepts payment, even when it’s for the wrong amount or from someone who is not a customer. By cashing that check, the insurance company has essentially given the customer the ability to argue in court that they were insured. 

As it turned out, the check slid under our door so long ago was from one of our customers, and the payment was past due. In fact, as a result of non-payment, the policy was slated to be canceled. To make matters worse, the check was not for the full amount of money owed. 

If we accepted the check by depositing it, that would reset the cancellation date. A reinstatement notice would have to be sent by the insurance carrier. 

But if the check then bounced, the insurance carrier would need to issue a new notice of cancellation with a date even further in the future, effectively giving the insured more coverage even after they hadn’t paid. That would hurt our bottom line, reducing our agency commission and forcing us to write off the cost of the premium. 

In the old days, it was rare that an envelope would show up under an office door in these circumstances. But the increase in online payments means it is far easier for customers to make these kinds of mistakes, especially as the less tech-savvy customers who had held off are forced into it by concerns over the coronavirus. 

Married couples using different credit cards, a customer forgetting their password, or an older customer getting confused while searching online – these are all potential E&O claims in the making. 

There are two main problems. In the first, the agency accepts a premium from a non-customer. In doing so, it creates a legally enforceable insurance contract, even if no policy exists. This is true even if you immediately return the payment. In the second, the agency’s acceptance of a customer’s partial payment forces it to postpone cancellation, even though they are past due. 

All of this is compounded online, where payments are processed automatically. Fortunately, there is a solution: Conditional payments. 

Under a conditional payment, online customers can request that you accept payment, but your website will not automatically put a hold on the funds. This means you have not legally accepted the payment. 

Instead, the customer is given a notice that their payment will not go through until it is reviewed by a human being. 

At the agency, you will receive email notifications advising you that someone has requested you accept a specific payment for a specific policy. This allows you to confirm the existence of the customer and the adequacy of the payment. 

You respond to the system by clicking accept or decline. 

If you accept the payment a receipt is sent to your insured showing the time/date of the transaction as the time/date stamp the system put on their request for payment. 

Essentially, we treat the time/date stamp of the request for payment the same way the insurance industry has traditionally treated the postmark date on a check received in the mail. The postmark date is accepted as the payment date for cancellation reinstatement purposes. 

If you decline, the system sends an email to the insured stating the payment is declined with any text explanation you include. This might include instruction on how to contact you to resolve any issues. 

This is the same method the IRS uses when accepting income tax payments online. 

Few, if any, agency financial management systems keep real-time information on payments for your customers. This means even integrating your online payment system with your agency management systems would not adequately protect you from these risks. 

If your insured is paying for an agency billed policy, integration with your agency management should provide correct information and can be useful in protecting you against these risks. 

When you are setting up your online payment system, make sure to ask your provider if they allow conditional payments and how well they are integrated with financial management systems. At Simply Easier payments, we do both, to protect agencies from the risks I learned about thanks to an envelope slid under a door so many years ago. 

At a time when many Americans are nervous about their futures, making sure that you can properly handle their insurance payments is just good business.

Online payments are convenient, secure and easy. But these days they can also help keep you, your employees and your customers stay healthy and ensure your insurance business stays productive during the coronavirus pandemic.  

Amid the virus health concerns, many employees across country are being encouraged to work from home, while older Americans are being advised to stay inside.

That spells trouble for those consumers who prefer to pay their insurance bills in person or by the mail, many of whom are older. And it presents a tricky situation for insurance agents and companies who have shifted their work remotely for the time being. 

Not only should your clients avoid going out to pay their bills, but even if they do, your business may not have anyone there to accept payments. 

That could be especially problematic in the insurance industry, where timely payments are paramount to maintaining coverage, something many Americans are undoubtedly nervous about as the virus spreads.

Even paying by mail could be problematic, as it requires having stamps on hand or going to the post office – and again, your clients should be focusing on social distancing, not worrying about making a payment in person—and your office may not have anyone there anyway to accept it.

The Federal Reserve Bank of Boston found in a 2017 study that the average American paid 8.4 bills in person, by mail or by phone, compared to 6.5 bills paid online and 6.4 bills paid through automatic withdrawal. That means a significant amount of people still aren’t paying online --presenting a new opportunity for you to increase the number of online payors, a true benefit especially during the pandemic.

If your insurance agency or company doesn’t accept online payments, it’s not hard to add that functionality to your website quickly, especially if your team is now all working from home. And it’s even easier to get your customers set up as well. And under the current circumstances, they’ll will be especially thankful of your new feature. 

Not only that, online payments also allow your customers to know exactly when the payment is received, while mailing payments is dependent on the postal service delivery timing. This helps your customers manage their own cashflow. Given so much uncertainty right now, they will appreciate when they receive confirmation of their payments, knowing it’s one less thing to worry about. 

As the coronavirus continues to spread, now is better than ever to shift your payment processing online with a straightforward plug-and-play payment system that you can quickly add to your website and just as quickly offer to your customers. 

At a time like this, you need to focus on the health and safety of your employees as well as your your customers all while ensuring the longevity of your business. Online payment processing can help with all of that and at no cost to you. 

I'll never forget waking up the first morning after I made public our very first online service.

I hopped out of bed and went to my computer, logged in, ran my report and pumped my fist when I saw overnight someone had subscribed to our online service.

Twenty years later, I still check every day and get the same thrill. The idea that you can run your business 24 hours a day, even while you sleep, is amazing to anyone who grew up in the analog era.

It’s especially appropriate for the insurance industry, where policies are in effect 24/7 even while both clients and agents are asleep.

Doctors and lawyers and carpenters get paid when they do specific tasks. But the nature of an insurance policy is that you sell it and renew it on a specific effective date. Every day after that date you earn the premium and commission on that policy unless something goes wrong.

The only hitch: Insurance premiums depend on timely payments. The only way to do that online is to make sure your website has a smooth payment processing system.

In a way, insurance agents are really in the payment acceptance, collection and receivables business.

Online Payments Are the Solution
If you allow your customers to make payments online – self-service – at the time and place most convenient to them – you get yourself out of that game.

You get to spend your time doing the things that allow you to provide better service and to attract more clients.

The insurance policy you sold probably was not a sale you made online. It could be, but it doesn’t have to be.

Insurance policies often require payments after the deposit, such as down payments, or even the full payment for things like:

• Endorsements 
• Installments
• Renewals

These payments can and should be possible for your customers to make easily online. Once you’ve added this capability to your website, then your business is working 24 hours a day, even while you sleep.