How to modernize the insurance claims payment process

Nearly 80% of policyholders say the claims process is the most important factor they consider when deciding whether to remain with their current provider. Yet one in three claimants say they leave the claim dissatisfied—putting more than $170B in renewal premiums at risk.

At the center of that dissatisfaction is payment speed. The longer it takes for money to reach the insured, the more trust erodes, and the more likely those customers are to shop around.

However, there is good news for insurance companies: Modern payment methods make it easier than ever to speed up payouts and access data that can accelerate the entire claims process. 

Why claims payments are a defining moment

Claims payouts are the moment when policyholders see whether their insurer delivers on its promises. It’s when customers are at their most vulnerable, and they’re relying on their insurance company to make it right. 

After liability and damage have been evaluated and coverage has been assessed, payment delays can extend the life of a claim by days or even weeks. What should be the final step in a difficult experience becomes another waiting period—and that shapes how customers view the entire process. 

In most cases, paper checks make the problem worse. Mail delays, lost checks, and the time required to reissue checks create friction. Instead of resolving their claim, policyholders are left asking a simple question: Where is my money?  

Additionally, customer expectations have changed. Thanks to the prevalence of digital banking, e-commerce, and gig platforms, instant payments have become increasingly normalized. Customers are beginning to expect insurance payouts to match those instant experiences; companies that can deliver will be positioned for success. 

How paper checks and slow payouts hold insurers back

Many insurers rely on paper checks because their payment systems were built decades ago, when checks were the simplest, and often the only way, to issue payments. In addition to taking longer, paper checks and other slow payout methods create several issues, including: 

Paper checks eliminate payment visibility once they leave the system

Once a paper check is issued and mailed, it effectively exits the insurer’s system. There is no built-in visibility into whether the payment was received, when it arrived, or whether it reached the intended recipient. As a result, insurers have no payment data unless a problem surfaces—typically when a customer or vendor calls to report a missing or incorrect payment.  

This lack of visibility makes it difficult to confidently close claims. If a check is delayed, lost, or misdelivered, the issue may go undetected for days or weeks, extending claim cycle times and increasing reopen rates. 

Paper checks increase fraud exposure

Lost, intercepted, or altered checks can be cashed before an insurer notices there’s a problem. What should be a routine payout can quickly escalate into an investigation, a reissued payment, and a frustrated customer.

Reports of check fraud doubled between 2021 and 2023, meaning paper payments remain a growing risk. Each mailed check increases exposure not just to financial loss, but to reputational damage when customers lose confidence in their insurer.

Catastrophic events amplify payment weaknesses

During catastrophic events, weaknesses in a payment system become impossible to ignore. When natural disasters or other catastrophic events hit, claim volumes spike, and customers need fast access to funds. 

In homeowners' insurance, displaced customers could be stuck waiting on mailed checks while trying to find temporary housing and replace essential belongings. In auto, delayed payouts can keep drivers from renting a vehicle or starting repairs. In these situations, slower payment speed can create real hardships, not just a slight inconvenience.

The real cost of slow payments

Slow, manual, and paper-based payments don’t just annoy customers; they create real challenges for insurers, including: 

• Operational impact: Claims teams spend time tracking missing payments, reissuing checks, and manually reconciling payouts. These efforts can bog down multiple teams. 

• Customer impact: Policyholders are often stressed and frustrated when payments are delayed. This can lower trust in their insurer and increase the risk of churn. 

• Fraud exposure: Intercepted or altered checks may be cashed, leading to irrevocable losses. Unlike digital payments, there are fewer early fraud indicators to track. 

• Inflated metrics: Unstructured payments require more manual input, which can increase key claims metrics, including cycle time, reopened claims, and inbound payment status inquiries. 

From checks to ACH to instant payments: speed and data matter

Paper checks became the industry standard largely because claims processes were built around them. But checks are slow, increase fraud risk, and carry no structured payment data. And speed alone isn’t the only issue—both payout timing and the data that travels with a payment affect how quickly a claim can be resolved.

ACH is a meaningful step forward. It removes mail-related delays, lowers fraud risk, and uses a digital rail that most consumers already trust. While ACH settles in batches, making it faster than paper checks but not instantaneous like RTP, the data included with ACH payments helps offset that timing gap. Insurers have better visibility into payment status and can include limited claim data in the payment file for easier reconciliation.

Instant payment rails such as RTP and FedNow fundamentally change what a “fast payout” means in claims. Funds settle in seconds, but just as importantly, rich, structured payment data travels with the transaction in real time. Claim numbers, policy IDs, and payment reasons can all be embedded in the disbursement, allowing systems to reconcile payments immediately rather than after the fact.

This combination of instant settlement and instant reconciliation eliminates common friction points like manual matching, follow-up inquiries, and payment status uncertainty. Claimants receive funds when they expect them, while insurers gain immediate confirmation and cleaner downstream workflows. The result isn’t just faster payouts, but faster claim closure and a meaningfully better end-to-end experience.

How P&C leaders can modernize claims payments

Changing long-standing processes requires planning and can be time-consuming. However, modernizing claims payment doesn’t require a full system overhaul. The most effective transformations happen in phases—starting with the easiest wins and building toward richer, more automated experiences based on claimant needs. Here’s how to make that shift.

1. Layer in digital verification to enable additional payment rails 

Before introducing digital payments, insurers can implement digital account verification to combat risks like account takeover and synthetic identities.  While rails like ACH do offer a limited ability for insurers to claw back misdirected payments, digital verification eliminates the risk of manual data entry errors that can cause payment failures and downstream rework for claims teams. Verifying account and identity information up front not only helps prevent fraud but also reduces operational overhead when payments are returned, redirected, or flagged for review.   

2. Replace paper checks with digital payments that are easy to adopt

With digital verification in place, the next step is moving as many claimants as possible off paper checks by offering ACH. ACH is familiar, widely trusted, and significantly faster than checks, making it an easy upgrade for both insurers and claimants. When policyholders securely connect a bank account, insurers reduce manual entry errors, misdirected payments, and follow-up corrections.

This phase focuses on scale and simplicity: clear instructions, predictable delivery timelines, and fewer “where is my payment?” inquiries. By digitizing payouts without changing core claims workflows, insurers can close claims more reliably while laying the groundwork for more advanced payment options.

3. Use richer payment data and automation to reduce claim cycle time. 

With a robust account verification solution in place to prevent payment fraud upstream, insurers can look to further improve the claims experience with instant rails. While ACH includes structured information that helps automate reconciliation, instant rails deliver that data in real time. Claim numbers, policy references, and payment purposes are embedded and confirmed immediately, allowing systems to update claim status, trigger notifications, and move claims toward closure faster. 

Working with a provider that supports multiple rails makes this progression easier. Insurers can start with ACH for broad adoption, then selectively offer instant payments where speed, certainty, or claimant preference matters most. This maximizes flexibility in the customer experience while minimizing implementation lift.

Over time, this richer, real-time data helps teams identify bottlenecks in the claims process and focus investigative effort on the most important cases. The result isn’t just faster payments—it’s faster resolution, fewer manual touchpoints, and a noticeably smoother claim experience.

How Plaid helps insurance teams gain a competitive edge 

Plaid offers several tools that can help insurers modernize claims payments, improve key metrics, and reduce fraud risks. By enabling secure bank account connections via Plaid, insurers can move away from paper checks and start using both ACH and instant payment rails for payouts.

From a single platform, Plaid supports all US bank payment rails: ACH, Real-Time Payments (RTP), FedNow, and wires, which gives insurers multiple options for speed, affordability, and risk mitigation. When speed is crucial, such as during catastrophic events, instant payments over RTP and FedNow can deliver funds in seconds. Both options provide structured payment data that can include claim numbers, policy references, and payment purposes, enabling automatic reconciliation. 

Plaid can also enable smart routing automatically based on account eligibility, urgency, and risk. Once a claimant’s bank account is verified, the insurer can send payments on the payment rail that best suits the insured's needs without re-collecting information or introducing additional steps for the customer.

Built-in risk signals and fraud prevention tools help ensure payouts go to the right account. Layered checks and tools like Plaid IDV and Protect reduce exposure to account-based fraud, enabling teams to focus on real risks rather than payment errors.

By improving how money moves, Plaid helps insurers shorten claim process times, reduce manual work, and deliver a better claims experience.

Faster claims require better data

The payment process is when insurers either earn long-term trust or lose customers. Slow, unpredictable payments extend claim lifecycles, increase operational overload, and lead to a poor customer experience. Shifting away from paper checks doesn’t just save time; it also provides insurers access to crucial claim data that can be used to streamline the claims process from start to finish. 

Insurers that modernize their payout process can help shorten claim lifecycles, reduce manual effort, and deliver a better customer experience. 

See how Plaid can help P&C insurers deliver a better payout experience.