The tangible cost of failed direct debits in insurance finance

Failed direct debits often don’t make headlines in board papers, but they quietly erode profitability.

According to PwC, insurers lose between 0.5% and 2.0% of premiums each year due to failed direct debit payments. The direct loss of premium is just the beginning.

Every failure triggers a series of manual processes: reconciling transactions, updating policy records, contacting customers, re-running collections and performing additional checks to stay compliant. For finance, this results in higher costs per policy, longer cash conversion cycles, increased Days Sales Outstanding (DSO) and more exceptions to explain at period-end and during audits.

Meanwhile, many insurers are heavily investing in digital front-ends, but the payment infrastructure still relies on processes and systems not designed for today’s transaction volumes or product complexity.

In essence, the industry is pushing digital transformation at the edges while the core financial systems are overwhelmed trying to convert booked premiums into collected cash.

When the financial core lags the front office

Recent KPMG research highlights five critical levers for improving insurer profitability: digitizing key functions (40%), introducing greater process automation (38%) and updating legacy technology architectures (35%), reducing cost to serve/costs per customer (35%) and reimagining business processes (28%).

On paper, many insurers are already working on these initiatives. However, real progress often stalls when the financial core remains fragmented or outdated.

The issues are familiar to finance leaders. Limited billing flexibility makes it hard to support varied payment schedules, multi-entity or group billing or product-specific rules without workarounds. Premium recognition is delayed due to slow settlements and the manual effort required for reconciliations. While finance, risk and compliance teams may technically share the same data, in practice, they operate with inconsistent information, which complicates reporting and weakens audit trails.

Over time, these problems do more than cause inefficiency. They tie up capital, increase operational risk and reduce the effectiveness of broader digital initiatives. A modern digital front end is of little use if the cash it generates remains trapped in slow, error-prone billing and collections cycles.

Where pressure converges: billing and collections

Operationally, pressure builds in several areas: policy administration, billing and collections, finance and actuarial processes, customer communications and legacy IT platforms. Each area is important, but billing and collections have the most direct and visible financial impact.

Many insurers’ finance teams spend disproportionate time retrying failed payments and handling exceptions across tens of millions of premium transactions. They rely on spreadsheets and side systems to patch gaps in core billing tools, which increases the risk of key-person dependency and errors. Consequently, settlement periods often exceed industry norms, tying up working capital, complicating cash forecasting and making it harder to provide a clear cash and revenue timeline to boards and regulators.

These are not just process problems; they stem from systems and architecture that were never designed to meet the specific demands of insurance billing.

Why generic billing tools fall short in insurance

Many carriers still depend on generic billing and payment software created for other industries. On the surface, these systems issue invoices, collect payments and update the ledger. However, they often struggle with the specific needs of the insurance industry.

Insurance billing must manage multi-tier commission structures, multi-entity billing requirements, policy-specific rules, mid-term adjustments, complex premium allocations and revenue recognition over long policy periods. It must do so at high volumes and low per-unit values while ensuring strong controls and audit trails.

When the core system cannot natively handle these complexities, finance teams are forced to work around them. They create manual processes, maintain offline adjustments and perform key calculations in spreadsheets. Although each workaround may seem manageable individually, combined, they increase the overall operational costs, raise the risk of errors and write-offs and complicate reconciliations, audits and regulatory reports.

In essence, tools that do not align with the business needs perpetuate the very inefficiencies that modernization efforts seek to eliminate.

What purpose-built insurance billing software brings

Purpose-built insurance billing solutions start from a different premise. They are designed around policy, contract and claims data, not just around invoices and payment files. The goal is to automate recurring tasks that take up finance’s time and contribute to variability in financial outcomes.

In practice, this means a tool can support consolidated billing for a customer or corporate group without manual aggregation. It can offer flexible installment plans aligned with coverage terms and product design, rather than being limited by generic templates. Collections and dunning workflows can follow insurance-specific rules and lapse thresholds rather than relying on one-size-fits-all reminder schedules. Mass disbursements for claim payouts, refunds or broker commissions can be managed with full auditability, rather than relying on ad-hoc batch processes.

For finance, the benefits are clear. Failed and late payments decrease as payment handling and retry logic become more effective. Premiums are collected more quickly, boosting cash conversion and reducing DSO. Sub-ledger data becomes cleaner, audit trails become stronger and finance staff gain more capacity to focus on analysis and planning instead of constantly fixing exceptions. In short, optimizing billing and collections shifts from a back-office task to a strategic lever for profitability, capital efficiency and control.

Billing modernization as a finance-led initiative

Viewed from a finance perspective, upgrading billing and collections is a decision about liquidity, revenue integrity, control and scalability.

Shorter cycles from premium due to premium collected directly improve working capital. Reducing leakage from failed debits, write-offs and manual errors protects the top line and stabilizes earnings. Stronger transparency and auditability across entities and products ease regulatory scrutiny and external audits. A solution that scales with transaction volumes and product innovation without requiring a proportional increase in finance staff can significantly improve the unit economics of growth.

These outcomes are precisely what finance leaders are measured on. That’s why many insurers are reassessing whether generic tools can reliably support their targets in the years ahead.

One example of a purpose-built approach is Collections and Disbursements (FS-CD), which focuses on insurance receivables and payables and tightly integrates billing and collections with policy and claims systems. Insurers that have implemented FS-CD report results, such as:

• 50% overhead savings after system consolidation
• 73% faster reconciliation with general and subledgers
• Over 98% of incoming payments processed automatically

The specific numbers will vary, but the pattern remains consistent: when billing and collections are modernized, the benefits appear in the metrics finance cares most about.

Turning payment operations into a strategic asset

Financial modernization in insurance goes beyond replacing outdated systems. It involves transforming payment operations from a source of friction into a pillar of resilience.

A purpose-built billing and collections solution enables finance to consolidate and automate payment flows across products, channels and entities. It offers near-real-time insights into liquidity and revenue at the level of detail the business needs. By significantly reducing exceptions, write-offs and manual interventions that obscure financial results, the data generated becomes more reliable for Risk and Actuarial teams, enhancing decision-making across the organization.

Insurers that embrace this change are better positioned to grow profitably, meet regulatory standards and uphold the trust of customers, brokers and investors.

For finance leaders seeking a clear example of how this works in practice, FS-CD provides a concrete illustration of how rethinking billing and collections can cut revenue leakage and boost liquidity without adding complexity for finance.