Insurance payment processing: Modern solutions for claims settlement

The evolution of insurance payment processing

Insurance claims settlement has historically relied on cheques and bank transfers. As banking infrastructure modernised, Faster Payments and BACS transfers gradually replaced cheques, reducing settlement times significantly. Typical insurance reimbursement via bank transfer now ranges between 1–3 business days to clear, though instant payouts remain rare across most large insurers.

These methods worked adequately when policyholder expectations aligned with broader banking norms. However, the rise of instant payment experiences has fundamentally shifted these expectations. Today's consumers use Monzo for immediate peer-to-peer transfers, PayPal for instant checkout, and Revolut for real-time currency exchange. They purchase insurance policies instantly through comparison sites. The contrast between this instant digital experience and waiting days for claims settlements damages satisfaction scores at precisely the moment when customer relationships are most vulnerable.

Traditional payment methods also create operational challenges beyond speed. Bank transfers, once initiated, cannot typically be recalled if fraud is later detected. Both transfers and cheques necessitate manual reconciliation, matching receipts to specific claims files, consuming finance team resources and introducing error potential.

Consumer Duty came into force in July 2023, with full implementation across closed products and legacy portfolios completed by July 2024. In 2025 and 2026, the FCA began issuing supervisory feedback and enforcement actions related to claims handling quality, fair value, and customer support. Insurers maintaining slow, cumbersome payment processes whilst competitors offer instant settlement may struggle to demonstrate compliance with these evolving standards.

According to a survey of 4000 UK policyholders from Nuvei, 40% switched insurers “due to slow claims processing, outdated payout methods, and lack of transparency”. This competitive pressure intensifies as providers differentiate themselves through superior claims experiences.

Understanding modern payment processing technology

Virtual card technology represents a fundamental reimagining of how insurance claims settlements can work. As of 2026, virtual and embedded payment solutions have expanded beyond standalone card issuance into API-integrated claim funding connected to insurers' core systems via Open Banking and ISO 20022 standards. Rather than transferring funds to a policyholder's bank account, insurers can instantly generate a virtual Mastercard with configurable parameters tailored to each specific claim.

A virtual card functions like a physical payment card but exists only as a card number, expiry date, and security code. It can be added to mobile wallets like Apple Pay for contactless payments or used for online purchases. The card is issued instantly through a secure portal, with the policyholder receiving card details via email or SMS within moments of claim approval.

What differentiates virtual cards in an insurance context is the configurability. Each card can be programmed with specific spending controls aligned to the claim circumstances.

Key capabilities of modern payment processing

Instant disbursement - Funds available immediately upon claim approval, eliminating policyholder out-of-pocket periods and enabling instant payment to service providers.

Merchant category filtering - Configurable restrictions ensuring cards work only at relevant merchant types, preventing inappropriate spending outside claim scope.

Unique card numbers per claim - Automatic transaction linking to specific claim references, eliminating manual reconciliation and improving financial accuracy.

Real-time intervention - Ability to monitor transactions as they occur and block cards instantly if suspicious activity is detected, before fraud compounds.

Lean funding - Central funding pool approach rather than individual card funding, simplifying operational processes and reducing administrative overhead.

Branded card issuance - Customisable virtual cards displaying insurer branding, maintaining customer relationship touchpoints during the claims journey.

How instant virtual card issuance works

When a home emergency claim is approved, the traditional process requires the policyholder to pay the emergency plumber, submit a receipt, and wait for reimbursement. Virtual card issuance eliminates this burden through a streamlined workflow:

1. Claims agent approves the claim and determines the appropriate settlement amount
2. Agent generates virtual card instantly via a portal with pre-configured spending controls and merchant restrictions
3. Policyholder receives card details via SMS or email within moments
4. Payment occurs instantly through contactless mobile wallet or card-not-present transaction
5. Transaction automatically links to claim reference for reconciliation without manual matching

The experience transforms from "you'll be reimbursed within one to three working days" to "here are your funds, available now."

Configurable spending controls in practice

Virtual cards incorporate Merchant Category Code filtering, enabling insurers to restrict card usage to specific merchant types. A card issued for emergency plumbing can be configured to work only at plumbing and heating merchants, trade suppliers, and emergency repair services. Attempted usage at supermarkets, petrol stations, or online retailers would be automatically declined.

Example claim scenarios

Spending limits align precisely to claim valuations. A claim assessed at £850 could receive a card limited to that amount, preventing overspend. Validity periods can be set to match service delivery timeframes. A home emergency card might be valid for 48 hours, whilst a vehicle repair card might be valid for seven days to accommodate parts ordering and workshop scheduling.

Comparing insurance payment processing capabilities

The business case for modernisation

Modern payment processing delivers measurable improvements across three operational priorities: customer satisfaction, fraud prevention, and operational efficiency.

Boosting customer satisfaction and competitive edge

Claims experience determines customer loyalty more than almost any other interaction. The out-of-pocket situation creates financial stress at an already difficult moment. Consider a policyholder experiencing a burst pipe that floods their kitchen, needing an emergency plumber immediately. The plumber quotes £850 and expects immediate payment.

With traditional claims processing, the policyholder must pay from personal funds and wait one to three days for reimbursement, creating cash flow pressure. Instant virtual card issuance transforms this scenario. The claims agent approves the emergency claim and generates a virtual card for £850 whilst on the phone with the policyholder. The card details arrive via SMS within moments. The policyholder adds the card to Apple Pay and pays the plumber contactless.

Claims handling quality directly correlates with renewal rates and Net Promoter Scores. Policyholders experiencing smooth, rapid claims settlement show significantly higher retention rates than those encountering delays and friction.

In an increasingly commoditised insurance market where price comparison sites make switching trivial, claims experience provides one of the few genuine differentiation opportunities. An insurer promoting "instant claims settlement" positions itself distinctly from competitors still using traditional payment methods.

Strengthening security and fraud prevention

The most recent figures from ABI report £1.16 billion in detected insurance fraud across over 98,000 cases, showing an increase compared with 2023. Whilst application fraud and staged accidents receive significant attention, reimbursement fraud represents a persistent vulnerability in traditional claims processes.

Traditional fraud vulnerabilities

Fake receipt submissions - Policyholders submit fabricated or inflated receipts for services never rendered, with detection occurring only after funds have been transferred.

Uncontrolled spending - Bank transfers can be spent on anything regardless of claim purpose, with verification relying entirely on receipt submission.

Post-payment detection - Fraud discovery typically occurs days or weeks after funds are spent, when recovery is difficult or impossible.

The fake receipt problem is widespread and difficult to detect. Even when suspicious receipts are identified, recovering fraudulently obtained funds proves challenging. Recovery requires legal processes, debt collection procedures, or write-offs that rarely recover the full amount.

Prevention-based fraud controls

Virtual cards with pre-configured controls fundamentally change this fraud dynamic. Rather than detecting fraud after it occurs, the technology prevents the fraud opportunity from existing.

Merchant category filtering - Cards work only at relevant merchant types, automatically declining attempted usage outside approved categories.

Precise spending limits - Claims assessed at £750 receive cards with exactly that limit, making overspending impossible.

Temporal controls - Validity periods aligned to service delivery timeframes automatically expire cards, preventing extended misuse.

Real-time monitoring - Portal dashboards provide immediate transaction visibility, flagging anomalies as they occur.

Instant intervention - Delegated Authorisation enables immediate card blocking if suspicious activity is detected, before fraud compounds.

Optimising operational efficiency

Manual processes consume resources that could be better deployed elsewhere. The traditional claims settlement workflow requires multiple touchpoints: claim approval, payment instruction, bank transfer processing, receipt collection, receipt verification, transaction matching to claim files, and reconciliation in financial systems.

The reconciliation challenge

In a high-volume claims operation processing 500 settlements daily, finance teams must match thousands of receipts to their corresponding claim files each month. The matching process introduces error potential. A receipt could be filed under the wrong claim reference. Transaction amounts might be recorded incorrectly.

Automatic reconciliation through unique card numbers

Virtual cards eliminate this entire manual reconciliation process. When a card is issued for claim reference, every transaction on that card automatically links to that specific claim. The claims system receives transaction data feeds showing precisely what was purchased, where, when, and for which claim.

This automatic reconciliation delivers immediate labour savings. Staff hours previously spent matching receipts to claim files are eliminated. The finance team receives clean transaction data already categorised by claim, ready for integration into financial reporting systems.

Implementation considerations for UK insurers

Modernising payment infrastructure requires careful planning, regulatory awareness, and thoughtful vendor selection.

Integration requirements

Virtual card platforms integrate with existing claims management systems through Application Programming Interfaces. Implementation typically follows these stages:

1. Development environment setup - API documentation review, data field mapping, security protocol establishment
2. Technical testing - Data flow verification, error handling validation
3. User acceptance testing - Claims team trials in controlled environment
4. Pilot deployment - Limited production rollout with specific claim types
5. Full production rollout - Scaling to complete claims operation

Timeline expectations vary based on system complexity. A straightforward integration with a modern claims management system might complete in as little as two months, including agent training, and the development of a customised dashboard.

Regulatory and compliance context

Key regulatory considerations

Consumer Duty compliance Consumer Duty implementation continues to evolve, with the FCA issuing supervisory feedback and enforcement actions related to claims handling quality, fair value, and customer support throughout 2025 and 2026. Faster claims settlement through instant card issuance aligns with Consumer Duty expectations around fair value and positive customer outcomes.

Data protection obligations Virtual card issuance involves processing payment card data and personal information. The platform provider should demonstrate GDPR compliance, including appropriate data processing agreements, security measures, and data retention policies.

FCA authorisation requirements Platform providers must hold appropriate regulatory permissions for payment services. Insurers should verify authorisation status.

For specific regulatory guidance on payment services, insurers should refer directly to the FCA Handbook, particularly the Payment Services and Electronic Money sourcebook, available at the FCA website.

Change management considerations

Technology implementation succeeds or fails based largely on user adoption. Claims teams require training on portal usage, card configuration options, and procedures for handling policyholder questions.

Training program components:

• Technical portal navigation - Interface familiarisation, card issuance workflows, transaction monitoring dashboards
• Scenario-based exercises - Claim type analysis, appropriate merchant restriction selection, validity period determination
• Customer communication skills - Explaining virtual cards to policyholders, mobile wallet usage instructions, security reassurance

Phased rollout strategy

• Phase 1: Emergency home repairs - The need for immediate payment is clear, merchant categories are well-defined, and repairs can be executed in relatively short periods of time.
• Phase 2: Motor insurance claims - Expand to vehicle repairs once claims teams are comfortable with technology.
• Phase 3: Broader claim types - Roll out across all claim categories based on lessons learned.

Vendor selection criteria

Not all virtual card providers offer equivalent capabilities. Insurers evaluating potential partner should assess:

• Insurance-specific functionality - Portal designed for claims workflows, merchant category filtering with insurance-relevant presets, configurable validity periods
• Portal usability - Intuitive interface requiring minimal training, real-time visibility, instant card blocking, bulk operations support
• Funding architecture - Lean funding model avoiding individual card funding complexity
• Security and fraud prevention - Real-time transaction monitoring, configurable spending controls, comprehensive audit trails. Vendors should demonstrate compliance with ISO 27001 or PCI DSS v4.0, reflecting the 2025 standards update.
• Integration capabilities - Well-documented APIs, demonstrated successful integrations with similar claims systems
• Support and service levels - Defined response times, clear escalation procedures, dedicated account management

The future of insurance payment processing

The trajectory of payment technology suggests several developments that will further transform insurance claims settlement:

Open Finance integration - The FCA is exploring extending Open Banking principles into insurance use cases, enabling real-time claim validation and payment authorisation through regulated APIs.

AI-driven fraud detection - Machine learning algorithms identifying spending patterns that deviate from normal claims behaviour

Embedded finance evolution - Native payment capabilities integrated directly into insurance platforms, with API-connected disbursement becoming standard

Real-time settlement expectations - Instant payment becoming standard across consumer banking, intensifying pressure for equivalent insurance claims speed

As Rehana Mitha, Managing Director at Edenred Payment Solutions, notes: "Virtual cards and embedded finance are streamlining the claim payout process. These technologies enable instant access to funds, eliminating delays and reducing paperwork for policyholders, while also offering insurers better transparency and fraud prevention tools."

Rehana Mitha
Managing Director
Edenred Payment Solutions

Payment technology that was once a differentiator will become a competitive necessity as policyholder expectations evolve. Traditional payment methods will likely retain niche applications, but the proportion of claims settled through traditional methods will probably decline steadily.

Final thoughts

Modern payment processing technology addresses the operational priorities that define successful claims operations: customer satisfaction, fraud prevention, and operational efficiency. Virtual card issuance delivers immediate financial relief to policyholders during stressful situations, eliminates fraud opportunities through configurable spending controls, and automates reconciliation processes that previously consumed significant finance team resources.

The business case extends beyond individual operational improvements. Competitive differentiation through superior claims experiences affects retention rates and Net Promoter Scores in a commoditised market. Regulatory expectations under Consumer Duty increasingly scrutinise customer outcomes during claims processes.

Implementation requires careful planning around technical integration, regulatory compliance, and change management. However, proven integration patterns and multiple successful deployments across the insurance market provide implementation blueprints.

Insurers evaluating their claims payment infrastructure should assess current processes against modern capabilities, considering not just transaction costs but the total operational expense including manual reconciliation, fraud investigation, and customer satisfaction impacts. 

Discover how we can help you transform your claims settlement

Establish streamlined processes with instant virtual card issuance, configurable spending controls, and automated reconciliation.