In recent years, insurance industry CFOs have come under increasing pressure to reduce costs, support digital innovation and create new revenue streams. Experts warn that in 2020 and beyond, conditions will be even more challenging. Yet what if there was a way they could achieve all three goals in one swoop, adding to the bottom line with only minor operational changes?
With innovative digital B2B payment platforms like Optal Virtual Account Numbers (VANs), now they can.
According to E&Y, insurance companies’ finance functions are “significantly” more expensive than those in other sectors. This situation is becoming unsustainable as low-cost competitors put the pressure on, and margins are squeezed:
“Today’s insurance market is tougher than ever, with increasingly sophisticated customers challenging insurers to innovate and reduce costs to survive. Welcome to the ‘new normal’ for insurance companies. By 2020, conditions will be just as, if not more, challenging … The function is being pushed, therefore, not just to cut its costs, but to do more with less.”
(EY, Making finance a game changer: The 2020 insurance challenge)
B2B payments are often overlooked as an area where strategic savings could be made. Insurance finance teams have grown so used to paying suppliers via cheque and BACS that the inefficiencies and costs associated with these legacy processes are commonly seen as a cost of doing business. Fortunately, that’s no longer the case.
Time to go digital
Traditional payment processes are riven with cost and complexity. Extra bank charges, administrative overheads and human error can all eat into margins. Optal research finds that reconciliation costs FTSE 350 firms on average over £560,000 each per year thanks to errors and manual processes, for example.
The good news is that there are now digital alternatives designed to streamline and optimise payment processes, that can also turn a traditional cost centre into a revenue driver for insurance CFOs.
Optal VANs are single-use, 16-digit virtual cards that finance teams can use to pay suppliers quickly and easily. There are no extra bank charges, none of the overheads associated with printing and sending cheques, and no opportunity for human error to cause costly mistakes. Reconciliation is automatic and immediate, and fraud costs are minimised because finance departments don’t have to store payee details.
Best of all, Optal offers a financial reward on each transaction. That’s pure profit that could be re-invested in growth initiatives or used to soften the impact of tighter margins. And it can all be done with just minor operational tweaks, to slot neatly into existing finance IT systems.
Two-thirds of FTSE 350 CFOs we spoke to said they favoured rewards, while even more (76%) agreed that turning accounts payable into a profit centre would appeal to their CEOs and boards.
Digital B2B payments therefore offer a fantastic opportunity for insurance CFOs to make a name for themselves — as strategic innovators capable of tackling the industry’s rising cost challenges and driving growth for the organisation.