Smarter Payment Tools, Stronger Coverage: How Insurers Can Stop Involuntary Churn

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People rely on their health, homeowners and auto insurance to protect them when it matters most. But even a single missed payment can put that coverage at risk. For better or worse, many missed payments occur unintentionally. Sometimes the payment failure stems from an expired credit card. Other times it’s outdated payment information. While they seem minor, these payment glitches create major problems: costly back-office cleanup, frustrated policyholders and—in extreme cases—policy termination. Involuntary churn occurs when customers lose coverage not by choice, but because of preventable payment failures.

Insurers need modern, automated payment tools that reduce administrative workload, prevent payment failures and boost customer retention and revenue. Involuntary churn is a silent revenue killer for subscription-based businesses like insurance.

 

The High Cost of Involuntary Churn in Insurance

Involuntary churn occurs when an insurance customer’s policy is canceled or not renewed due to payment problems—not because the customer actively decided to cancel. For example, if the premium payment (including any late fees) is not received by the end of the grace period, the policy will lapse. Insurance coverage officially terminates, and the policyholder is no longer insured. Unlike other subscription services, where interrupted service is an inconvenience, the stakes are much higher with insurance. Losing a Netflix subscription due to payment failure is annoying, but losing insurance coverage can be catastrophic.

 

Causes of Involuntary Churn

Most involuntary churn stems from payment failures due to:

  • Insufficient funds (for ACH transactions): The customer does not have enough money in the account to cover the premium
  • Fraud detection/false declines: The issuing bank’s fraud prevention system flags a legitimate transaction as suspicious.
  • Technical glitches: Issues arise with the payment gateway, processor or card network.
  • Credit card declines: This can be due to expired cards, outdated billing information, or an incorrect card number, CVV, or billing address
  • Card cancellations: This can be done by the cardholder or issuer, such as when the card is reported lost or stolen.
  • Credit limit barriers: When customers exceed their credit limit, additional payments will be declined.

 

Harmful Consequences of Involuntary Churn

There are several potential negative effects involuntary churn can have on a company’s revenue stream, including:

Revenue loss: When a customer’s premium payments are terminated, the insurer’s revenue stream is interrupted, which disrupts cash flow. On average, subscription providers lose 9% of their annual revenue from failed payments. Involuntary churn also reduces customer lifetime value by shortening the relationship with a customer who would otherwise have continued to provide revenue over a longer period. Insurance customers are long-term assets, so losing one early means walking away from years of premium revenue and missed opportunities to cross-sell other policies (such as bundling home and auto policies).

Voluntary churn: Customers hate dealing with payment failures. Each failed transaction increases the likelihood that customers will cancel their policy. Even if no accident occurs during the coverage gap (the worst-case scenario), policyholders may be frustrated enough by the payment ordeal to switch to another insurer instead of reinstating their policy. A PYMNTS survey found that 27% of subscribers are likely to cancel a subscription when notified of a failed payment.

Increased operational costs: The collections process—whether using automated or manual efforts to recover failed payments—is costly. Insurers incur costs related to:

  • Automated retries: The payment gateway or processor charges a fee for each payment attempt, including retry attempts for declined payments.
  • Communication: Billing staff send failed payment notifications and reminders via email, SMS or physical mail to prompt policyholders to update their payment information.
  • Increased call center volume: Customer service agents spend significant time handling inquiries related to failed payments, helping customers update billing details and reinstate policies. This diverts resources from other customer service needs.

 

The Solution: Smarter Recurring Payments with Fewer Failures

Payment reminders and recurring payments—automatically deducting premium payments from a bank account or credit/debit card on a scheduled basis—reduce late payments. However, autopay’s “set it and forget it” approach is not exempt from payment failures. Customers using autopay may not remember to update their payment information when it changes, for example.

To prevent payment failures and coverage disruptions, insurers need a payments system that automates several key tasks, such as:

  • Proactive account verification: To improve Automated Clearing House (ACH) transaction success rates, verify that routing and account numbers exist, customer account data is current and accounts are active and have sufficient funds.
  • Proactive communication: Notify customers via their preferred channel, whether that’s email, text or interactive voice response (IVR) that their credit card expires soon and encourage them to use digital channels to update their account information.
  • Account updates: Use an account updater solution that automatically communicates with card networks to obtain updated card numbers and expiration dates when a card expires, is reissued or otherwise changes, without requiring the customer to do anything.
  • Payment retries: Implement payment retry logic, a system that automatically resubmits failed payment attempts, to recover revenue and improve customer experience. Retry logic involves setting rules for when and how to retry, considering factors like decline codes, customer behavior and payment methods. Using machine learning to analyze historical payment data (to determine the best times to retry a failed payment) can significantly increase retry success rates while reducing unnecessary attempts (and their associated fees).

 

Fewer Failures Mean More Renewals, Revenue and Resourcefulness

A modern payment system that integrates with your agency management system (AMS), supports recurring payments and automates credit card updates benefits policyholders and insurers by:

  • Reducing revenue loss: Autopay increases on-time payments, improving cash flow. Automatically updating expired or outdated credit card data reduces payment failures, preserving revenue.
  • Enhancing operational efficiency: Billing staff don’t waste time tracking down customers to collect late payments or get updated credit card details. Eliminating manual processes and outreach allows staff to focus on helping customers with more complicated needs. Payment portals that integrate with your AMS eliminate duplicate data entry, reducing errors.
  • Improving customer experience and retention: Policyholders expect effortless digital payments. They don’t want the hassle of late fees, failed transactions or updating expired cards. A smooth, failproof payment experience boots satisfaction and loyalty, decreasing voluntary—as well as involuntary—churn.

 

Keep Every Policy and Capture Every Payment with CSG Forte

You don’t need to overhaul your payment system to improve on-time payments. Just add smart tools that streamline operations, reduce payment failures and deliver a convenient payment experience your policyholders won’t have to think twice about.

CSG Forte offers a suite of integrated payment solutions—including verification services, security and compliance solutions and recovery services—that work with your existing agency management system. No rip-and-replace required. With CSG Forte’s Account Updater, you can keep card data current, minimize involuntary churn and maximize revenue and cash flow without the back-office hassle.

Pairing recurring payments with a card updater in an integrated payment portal gives your agency a steady, predictable revenue stream—with minimal manual effort.

Ready to say “good riddance” to involuntary churn?

Talk to an expert today and discover how CSG Forte can help streamline your payment processing, reduce churn and unlock your business’s full revenue potential. Get in touch with one of our payments experts.