When evaluating a BaaS provider, there are a number of different features to consider.
Transactional Servicing Features
A variety of features are available to handle the day-to-day transactional activities of billing.
Billing types:
Insurers use a wide variety of invoice mechanisms. Many use direct bill, which involves billing the policyholder directly. Some will bill a third party, such as a mortgagee or a trust. Some will split payments across multiple payors. Some support monthly reporting, where a policyholder provides a periodic statement of their rating base (typically revenue or payroll), and the bill is calculated based on the actual exposure for the period.
Some bill the agents using an account current, which is a list of all transactions for the billing period across multiple policies showing policy numbers, the premium transaction amount, the commission earned, and the amount due to the insurer net of commission. Some use a form of agency bill called statement bill, which is a list of all transactions for the billing period and is similar to an account current. But in statement billing, the agent is responsible for paying the full amount due, and the insurer will pay the commission as a separate transaction. Wholesale or item billing is where an insurer bills the agent one transaction at a time rather than waiting for the end of the billing cycle.
Group bill is where a single party is billed for multiple party transactions. This occurs in employee benefits but is also found in workers’ compensation for insurers working with PEOs (professional employer organizations). Employer billing is also commonly used for life insurers or group benefits, where the employer is billed for the transaction, and the employer then collects payments from employees typically through payroll deductions.
BaaS providers can typically handle most or all of these billing types.
Pay-as-you-go:
Pay-as-you-go is a unique billing type primarily used in workers’ compensation today. Compared to an estimated annual payroll amount, pay-as-you-go relies on real-time payroll to calculate workers’ comp premiums. This results in more accurate premium payments but requires a way of getting the payroll feed. Providers who offer this service have done the hard work of integrating with multiple payroll companies so that the insurer only has to integrate with the provider rather than with each payroll company. Pay-as-you-go is also used in auto insurance as well, adjusting rates based on miles driven.
Payment plans:
Most insurers have a variety of payment plans, ranging from full payment upfront to monthly payment. Many have other options, such as ten-pay or quarterly pay. Some insurers have limited flexibility in their existing systems and would like to be able to easily and quickly apply more flexible payment plans.
The BaaS provider can execute on these payment plans and can help insurers create new plans. Look for the level of flexibility in creating new plans. Payment plans should be capable of being specific by product line and state at the very least but also by premium size, retail agent (large agents like special deals), and, for the ultimate in flexibility, by account.
Some policy transactions, such as special event coverage, require full payment, even on a policy that is on a payment plan. BaaS providers can handle these mixed transactions.
Some insurers, especially mutual or workers’ compensation insurers, offer dividends. While most insurers offering dividends will apply the dividend as a discount to a future policy, some issue separate payments. BaaS providers can handle one-time payments, such as dividends.
Account bill:
Many insurers have challenges providing account billing — sending a single bill to a policyholder with multiple policies and multiple transactions reflected on the bill. An example might be a customer who has both an auto and a homeowner's policy, or a customer who has both a term-life and long-term care policy. BaaS providers can generally handle multipolicy single billing.
Billing notification:
The process of delivering a bill to a policyholder comes in many forms. Some policyholders prefer a paper bill so that they have a physical copy of the bill. Others prefer electronic notice through email. Some like to get a text letting them know that the bill is due — and often allowing them to pay directly within the text dialogue with a simple reply. Notification of a bill through a mobile app is common. Automated outbound phone calls are used by some, typically for a late payment reminder. Some BaaS providers can even send a bill through social media such as Facebook Messenger.
Payment methods:
Policyholders seeking convenience are increasingly interested in new, fast, and easy ways to pay their bills. Offering a wide variety of payment types helps to meet the wide range of policyholder expectations. BaaS providers can generally accept paper checks through a lockbox, recurring or one-time credit/debit card payments, e-checks, and EFT/ACH.
Other options often provided by BaaS vendors include remitting cash at third party locations, interactive voice response (IVR), or agent-assisted payments via phone. Fresh new options are now often available, such as online mobile text; digital wallets such as Apple Pay, Venmo, Zelle, or PayPal; and Amazon Pay (using Alexa). We expect voice-assisted technology to grow in popularity over the next three years for personal lines policies. Chatbots also often have the ability to take a payment. Similar methods are used for refunds due to an overpayment of premium or policy changes.
Workflow:
Look for how the BaaS provider handles workflow. Workflow requirements, especially those based on nonpayment cancellations, differ based on state. Many providers have automated the process, while others rely on human intervention.
Payment timing:
Policyholders need the flexibility of making one-time payments or partial payments or putting the bill on autopay with a defined payment plan. Rules are needed to determine how to handle overpayment (e.g., refund, apply to next payment, or spread-over-future payments). And rules are needed to determine how to handle underpayments.
NSF/Cancellation processes:
Insurers are required to follow the regulations in each state when it comes to nonpayment cancellations. BaaS providers stay on top of the laws for each state and handle the notifications on behalf of the insurer. Typically, there is a process for payments with insufficient funds (NSF) that may involve an initial notification of the NSF and application of a fee to handle the cost of the transaction. Grace periods are applied and often there are underpayment rules. For example, an underpayment of $10 or less will be accepted, while an overpayment of $10 will trigger a notification.
Notifications need to be provided to the policyholder both via paper and via the policyholder’s preferred communication method. Should a lapse/cancellation notice need to be delivered, the BaaS provider handles that by complying with all state requirements, including certified mail where necessary.
The insurer may set up rules for automatic reinstatement should a payment be received within a specified timeframe. Otherwise, notifications are provided back to the insurer so that the policy cancellation transaction can occur in the policy administration system.
BaaS providers can often handle equity date calculations for the insurer. Many insurers calculate the payment plans by building equity date calculations into the plan itself. Should a policyholder be canceled, still owing funds, the BaaS provider has processes in place for the first level of collections and can send the bill to a formal collection process where needed.
The BaaS provider will also handle refunds for policyholder cancellations/lapses.
Fees:
Typically, the BaaS provider and the insurer identify all the potential fees that could be applied for each transaction type. The BaaS provider applies the fees and retains the fees to cover their costs for the transactions. Fees may include individual transaction fees, NSF fees, reinstatement fees, late payment fees, or others. Some insurers have specific products that have fees associated with the product (e.g., a fee for a telematics device). In these situations, the BaaS can bill for the fee as a specific line item and can follow insurer rules about whether to apply funds to the fee first and then the policy, or vice versa. The BaaS provider can also handle the tracking and the refund of the fee if needed.
Commissions:
BaaS providers can generally handle commission payments to the agents, including return commissions on transactions with return premiums. They’ll calculate the commission payments, create commissions statements, provide online access to commission statements for the agents, and, in some cases, provide online reconciliation tools.
Source: Celent
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