Insurance is big business. According to data assembled by the Insurance Information Institute, the direct premiums written across all insurance sectors within the US in 2024 reflected roughly $2.14 trillion. And given the nature of the industry, virtually every dollar collected to support those amassed policies passes through an accounts receivable (A/R) process.
Considering the critical nature that insurance plays in our lives, keeping both policies and premiums fully and properly funded is not only a priority for providers but for policyholders as well. In this article, we’ll spend some time examining what A/R looks like within the insurance industry, its unique challenges, and notable best practices for keeping your billing efforts efficient, accurate, and cost-effective.
What is accounts receivable in the insurance industry?
Put simply, A/R within the insurance industry relates to the billing and collection of relevant funds owed to the insurer by customers, agents, brokers, reinsurers, and any other intermediaries or interested parties involved in the process.
Far more complicated than sending out an invoice for delivered products or a completed service, A/R for insurance companies presents a unique challenge. Most of your efforts will focus on premium collection, which may include generating invoices for policyholders, sending follow-up or dunning messages, and collecting payments. However, these operations will typically align more closely within the niche of subscription-based billing than a conventional invoicing model.
At the same time, your collection functions will need to be offset by claims reimbursements, reinsurance costs, and corresponding recoverables, making it much more complicated to effectively manage your cash flow, a downstream function of A/R. You’ll also be including sensitive policyholder information within your billing records, which places increased privacy and security demands on the overall process.
Key components of insurance accounts receivable
Insurance accounts receivable include various categories of incoming funds that insurers are owed throughout the policy lifecycle. These receivables play a critical role in maintaining cash flow, ensuring compliance, and accurately tracking revenue. The most common components include:
- Premium receivables: The funds owed to the insurer by the customer for a given policy
- Reinsurance recoverables: The funds owed to the insurer by a reinsurance company that partially offset an already-paid claim
- Subrogations: The funds recovered by the insurer from a third party (typically the cause of the original claim) that offset some or all of the funds paid out in a claim
- Overpayment receivables: The funds owed back to the insurer due to an overpayment either to the claimant or an associated service provider (e.g., a medical office, repair shop)
- Commission reversals: The funds recovered by the insurer from agents or brokers due to an account issue tied to an already-paid commission
Why accounts receivable management matters for insurance providers
With so many sources for potential revenue that each needs to be closely monitored, at least if you hope to be paid regularly, having efficient A/R processes in place is critical. Without them, you might overlook missed premiums or reinsurance recoverables. You might expose your business to unnecessary risk or unintentionally alienate policyholders with slow processes. Or you might even run afoul of regulatory accounting standards and incur stiff financial penalties.
Fortunately, there are a variety of technologies and software available to help, and with the right solution, you can:
Accelerate premium collections and stabilize insurance cash flow
Buyers are more likely to respond to their outstanding invoices the sooner they receive a payment request. If you have disjointed or bottlenecked workflows that add unnecessary days to your invoice to cash (I2C) cycle, you’re not only limiting how much capital you have on hand to run your business, but you’re also reducing the likelihood that these debts will be paid in full — or even paid at all.
With streamlined workflows that limit delays and process duplication, you can keep your various revenue streams running smoothly.
Reduce manual effort and reclaim time through A/R digitization
Efficient A/R processes now mean digital A/R processes. So if you’re still relying on physical paperwork that needs to be carried between offices and signed by hand, you’re wasting a lot of time and effort. Of course, if you haven’t fully automated your accounts receivable, you’re also likely spending too many hours on invoicing, dunning, and cash application.
When you shift to an electronic model, however, you can transfer and process documents in seconds, letting you accomplish more with fewer dedicated staff. This frees up workers to focus on more strategic tasks, like building relationships with customers or investigating process exceptions and abnormalities.
Enhance billing accuracy to improve partner and policyholder satisfaction
For insurance companies, accuracy is critical. One error, one inappropriately coded claim, or one transposed figure can cause all manner of headaches for your business with potentially severe downstream complications.
After all, few things can more quickly sour a business relationship than inaccurate billing or other financial mistakes. So, as you stop talking about physical paperwork and start talking about data, you can introduce greater accuracy into your operations, especially as you remove more manual tasks.
Improve cash application accuracy across diverse payment sources
We’ve already highlighted five different types of receivables that an insurance business can expect to receive on any given day. Still, if we were to be more granular and exhaustive, that list would grow considerably. And with payments coming in from policyholders, intermediaries, service providers, and reinsurance companies, making sure that every dollar shows up in the correct account can be truly challenging.
Streamlined cash application — preferably driven by advanced algorithms or other matching technology — can help ensure that all of the relevant parties are accurately credited for their payments, even if these transactions cover multiple claims.
Strengthen A/R oversight to support compliance and audit readiness
Akin to most financial organizations, insurance companies need to navigate quite a bit of red tape and statutory controls to operate. And these burdens increase dramatically within more heavily-regulated sectors, such as medical or life insurance. As such, poorly managed A/R processes that are prone to frequent delays and inaccuracies can place the entire business in jeopardy.
Ideally, as you formalize and streamline your billing and collections efforts, you’ll also be formalizing and streamlining your associated reporting efforts. Many modern A/R solutions let you output data directly from the platform into convenient reports that can be readily provided to auditors, both internal and external.
Real-world A/R scenarios in insurance
Example 1: Speeding up reinsurance recoverables with automation
Ironclad Protection is a fictional provider of insurance policies for battle robots that compete in gladiatorial arenas. Given the intentionally destructive nature of these competitions, Ironclad works with a network of reinsurers to help offset the potential costs tied to the payout for a total loss of a fighting robot.
Given its disjointed, manual accounts receivable processes, Ironclad frequently faced delays in receiving payments from its reinsurance partners. However, after switching to an automated A/R solution, the business was able to accelerate the process, submitting paperwork in hours instead of days.
Example 2: Solving invoice delivery challenges with e-invoicing
The imagined company of Soft Landing, Inc. offers supplemental policies tied to circus nets, specifically targeting trapeze and high wire acts. Unfortunately, its client base was extremely mobile, and its paper-driven accounts receivable processes made it difficult to get monthly invoices to policyholders before they had traveled to a new town.
As a result, Soft Landing migrated to an e-invoicing solution that lets it send out invoices and receive payments electronically, cutting out delays and improving overall cash flow.
Example 3: Improving subrogation tracking and forecasting with analytics
Consider the fictional case of FrostShield Insurance, a business that exclusively covers property fences sculpted from immense blocks of ice. Unfortunately, the arctic climates that can sustain these frozen structures also tend to create icy road conditions, and claims are typically tied to some form of vehicular mishap.
Given that much of the funds streaming into the business are tied to subrogations from the associated drivers or their auto insurance companies, FrostShield typically deals with extended payment cycles, which subsequently complicate forecasting and budgeting efforts. Fortunately, the business migrated to a modern A/R solution that featured integrated reporting and analytics tools. And now the company can easily monitor these outstanding payments and accurately record them in their back-office accounting systems.
Common A/R challenges faced by insurance companies
Unfortunately, far too many insurers still rely on overly complex, labor-intensive workflows. Still, with the right solution in place, you can shift much of your A/R-related labor and oversight onto technology. Of course, not all systems offer the same capabilities or features, but preferred solutions can commonly help with:
- Manual billing processes tied to complex policy structures, which can be streamlined and accelerated with automated workflows featuring built-in validation steps
- Excessive days sales outstanding (DSO) on premiums and reinsurance recoverables, which can be shortened by using consistent, multi-touch dunning
- Compliance with heavily-regulated financial reporting standards, which can be simplified thanks to integrated tools and dashboards that capture and monitor key performance indicators (KPIs) in real time
- Common processing errors and data inaccuracies, which can be avoided by shifting to A/R software that delivers broad integration support for common enterprise resource planning (ERP) platforms
- Surges in premium or other receivable volumes, which can be readily accommodated with additional processing power rather than waiting to onboard more staff
- Policy renewals and cancellations — and their associated oversight, which can be offloaded to policyholders by employing a subscription-based billing model with self-service capabilities
Best practices for managing A/R in insurance
As premium collection and reinsurance recoverables continue to grow more complex — both in process and regulation — insurance companies must adopt strategies that let them streamline operations, improve visibility into enterprise-wide financials, and stabilize cash flows. Below are some recommended actions that you can take to strengthen your accounts receivable performance, letting you accomplish more with less work.
1. Automate insurance A/R workflows to reduce friction and manual errors
It’s already come up a few times in this article, but we cannot overstate the advantages offered by A/R automation for insurance companies. Look for solutions that let you customize workflows to meet the unique needs of your business. And you should also consider platforms that leverage artificial intelligence (AI) to simplify and streamline more complex yet highly repetitive operations, such as cash application.
2. Offer flexible payment options and self-service tools for policyholders
If you want your policyholders to pay their premiums consistently and on time, make it incredibly easy for them. Accept a broad range of payment types — such as credit cards, automated clearing house (ACH) transactions, and wire transfers — so that they can use their preferred method. Offer autopay capabilities, thereby removing their need to remember to make payments every period. Even better, provide them with self-serve options that let them control when they initiate or end coverage.
3. Improve A/R communication with policyholders, reinsurers, and agents
Within the context of accounts receivable, surprises are rarely positive. Instead, you want your employees, policyholders, intermediaries, reinsurers, and everyone else to be on the same page regarding the funds that should be funneling into your business. Document your internal processes to simplify the onboarding of new A/R staff. Set expectations with brokers and agents regarding incentive structures before they begin. Inform policyholders repeatedly and consistently of their payment responsibilities.
4. Use real-time A/R analytics to track DSO and detect issues early
With such complex workflows, it can sometimes be challenging to identify A/R problems until they’ve become rather disruptive. But by proactively tracking standard metrics — like DSO — you can remain apprised of how your invoicing and payments efforts are going. Similarly, make a process change or modify a policy. You can monitor how successful that alteration has been, allowing you to fine-tune your accounts receivable to drive the most value to your business.
5. Audit insurance A/R processes to ensure compliance and identify inefficiencies
Beyond monitoring in real-time, you should also perform routine reviews of your historical performance data, looking for any trends, both positive and negative. With this approach, you can often identify and address recurring errors, verify adherence to regulatory standards, and evaluate the ongoing performance and cooperation of your partners and intermediaries.
How insurance companies can modernize A/R
Managing complex receivables — like premiums, subrogations, and reinsurance recoverables — can quickly become burdensome without the right tools. That’s where automation comes in. By streamlining everything from billing and payment collection to reconciliation, A/R automation helps insurers improve efficiency, reduce manual work, and accelerate cash flow.
At Invoiced, our Accounts Receivable Automation software is built to support the unique needs of insurance companies. From flexible recurring billing options and global payment capabilities to a self-service portal for policyholders and AI-powered cash application, our platform helps modernize A/R across the entire payment lifecycle.
Want to dig deeper into how automation can support your A/R processes? Explore our guide to A/R automation for insurance companies. Or, schedule a demo to see how Invoiced can help.
