What are the challenges for cross-border life insurance providers and beneficiaries?
Completing a life insurance payout is more complicated when the provider operates in a different country to the beneficiary, and therefore a simple domestic money transfer is not an option. Nevertheless, providers must do everything they can to ensure these transactions run as smoothly as possible. After all, customers need to be confident that their loved ones will receive payouts quickly and easily in the event of their death.
The most common payment methods in these circumstances are international bank cheques and international bank transfers, but both of these come with challenges. Here are some of the factors cross-border life insurance providers must keep in mind in order to provide customers with an effective, reliable service:
1. Delayed payments
Cross-border life insurance payouts must reach the beneficiary promptly as it’s highly likely they’ll be relying on this money in the absence of the policyholder. Unfortunately, despite the significant advancements in recent financial technology, international cheques can still be incredibly slow and bank transfers - complicated.
International cheques often take between 14 and 20 days to arrive, and then there will be an additional wait while the beneficiary’s bank clears the cheque. Bank transfers, while much faster than cheques, can still take between two and five days depending on the countries and currencies involved. If the beneficiary desperately needs to make a payment, this may be too long for them to wait for the funds.
2. Beneficiaries who are unbanked or live in rural locations
According to the World Bank Group, 1.7 billion adults in the world are unbanked. Half of the world’s unbanked population comes from just seven countries: China, India, Pakistan, Indonesia, Nigeria, Mexico and Bangladesh. For these individuals, a bank transfer is evidently not an option, and while it’s not impossible to cash a cheque without a bank account, it will be much harder, slow and costly.
In addition to unbanked beneficiaries, cross-border life insurance providers must also consider those in remote or rural locations. If there are no nearby banks, or there are accessibility limitations due to issues like poor infrastructure and inconvenient opening hours, payment disbursements will be significantly delayed.
3. High fees
Beneficiaries will be hit with a number of fees when they receive money from abroad. This includes the foreign exchange rate (which tends to be higher than the market exchange rate so banks and other money transfer services can make a profit), as well as bank overheads and other processing fees. Though the insurance provider may need to pay some of these charges to initiate the transaction, so will the recipient.
International bank transfers can be expensive due to bank fees and deductions depending on the countries and currencies involved, while beneficiaries pay high fees to cash international cheques— including a hefty charge if the cheque is returned unpaid. This all means that a significant sum will be deducted from the payout so the beneficiary, unfortunately, will not receive their money in full.