Contact Us

Insurance Billing 101

author avatar
By The Boost Team on Jan 23, 2023
6 min read
A businesswoman uses a calculator at her desk.

The insurance market is huge and growing. But when it comes to collecting those payments, insurance is a lot more complicated than most goods or services. We’ll take a look at the factors that go into calculating an insurance bill, and what options companies have for billing methods.

What Makes Insurance Billing Complicated?

The reason why insurance billing is so complicated can be boiled down to one thing: state-by-state differences. Since every state makes its own rules for insurance, the requirements to stay compliant can vary significantly. Businesses that sell insurance in multiple states need to pay close attention to each state’s rules (or work with a partner that can help).

Here are 5 things that can make billing for insurance complicated:

1. Taxes and fees 

Every state imposes its own taxes and fees, sometimes with different guidelines for how they should be collected. This means that if you sell insurance in fifty states, you need to stay up to date with fifty sets of rules for when and how to add taxes to your customer’s bill. 

Different insurance products can also have their own rules, depending on both the type of product and its regulatory status. Admitted products, which are products that have met regulations set by the state’s Department of Insurance, have most (but not all) taxes and fees included in the premium. For non-admitted products, however, taxes and fees are billed separately. 

Taxes and fees can cause complexity for more than just the policyholder’s bill. Some are commissioned on, meaning that they’re included in the amount calculated for an insurance seller’s commission, and others are not. This is yet another set of rules an insurance organization needs to track in their billing. 

2. Installment variations

Besides just having different rules about how taxes can be charged, different states may have differing rules about how to charge for the premium itself. 

As we saw earlier, the premium is the cost of insurance for the entire coverage period, frequently six months or a year. Going back to our earlier example: say an insurance policy covers a 12-month period for a premium of $600, with an additional $120 in taxes and fees. Depending on the state, the premium might be billed a number of different ways:

  • In installments, with all taxes and fees paid upfront. For our example, this would mean the first month's payment would be $170 ($50 for the premium, $120 for the taxes and fees). The subsequent 11 installments would be $50 each (premium only).

  • In installments, evenly divided throughout the term. For our example, this would mean twelve payments of $60 ($50 for the premium, plus $10 for taxes and fees).

  • In installments, skipping taxes and fees for the first month. For our example, this would mean a payment of $50 for the first month, then around $60.90 for each month after (with a few pennies’ variation between months, since $120 does not divide evenly by 11 months). 

3. Non-payment cancellations 

If the insured doesn’t pay their premium, what happens? The answer depends on the state. Usually you’ll send a notice that their policy will be canceled on a certain date unless they pay their bill, but the way that notice is sent may be dictated by state requirements. Some states mandate much longer notice periods before a policy can be canceled for non-payment. States may also have specific requirements around the language used in the notice, and how it’s delivered to the policyholder. 

4. Refunds

If the policyholder cancels their policy partway through the term, they may be entitled to a refund. The amount of that refund, however, can be complicated to compute. 

If the entire premium was paid upfront, how much of the term has passed? The appropriate amount to refund might vary if the policyholder cancels near the beginning of the month, versus near the end. Refunds might also be prorated to account for the part of the term that’s already over, in which case the amount refunded might vary based on the day of cancellation. Even the time remaining in the term may not be straightforward to calculate - different insurance products use different calendar types, and the number of days in a “year” or “month” can vary. 

Separate from the premium are the taxes and fees. Depending on the situation, these may or may not be part of the refund. Some taxes and fees are considered fully “earned” at the beginning of the installment period or at payment - which means this amount would not be returned to a policyholder who cancels early. Determining which taxes and fees are included (and which aren’t) is an important part of any insurance refund calculation.

5. Midterm endorsements, and reconciliations 

Any time an insurance policy’s coverages change, the premium amount changes too. If it comes time to renew a policy and the insured decides to add or remove coverages, the billing is fairly straightforward - the premium for the next period will reflect the new coverages. 

If the policyholder wants to add new coverages before their policy term ends, however, it’s called a midterm endorsement.  This is where things can get complicated, especially if the policyholder has already made payments toward the old premium amount. The difference between the old and new premium will need to be charged or refunded to the policyholder as a reconciliation. This isn’t as simple as just charging the difference between the old and new premium. The amount required for the reconciliation will depend on the time left in the policy, the amount already paid, and more.

Insurance Billing Methods: Direct Billing vs Agency Billing

We’ve looked at some of the factors that add complexity to calculating an insurance bill. However, determining the amount owed by the insured isn’t the end of it. There are multiple methods for how the policyholder’s premium can be collected.

The main reason for this relates to how insurance is sold. Many companies that sell insurance, like insurtechs, don’t build their own insurance product in-house. Instead, they partner with another company that’s already done that work to offer their product, whether that's an insurance carrier or a white-label insurance-as-a-service provider

These companies then have two options for choosing a billing method: direct billing, or agency billing.

What is direct billing?

In direct billing, the policyholder pays the insurance carrier directly. With this form of billing, the company that sells the insurance is paid a commission after the carrier has received the premium.

With direct billing, the insurance carrier is responsible for all the billing issues we discussed previously, from taxes and fees to refunds, cancellations, and premiums. This can make it significantly easier for the company selling the insurance to get started, as they don’t have to build their own billing function around the product. 

Because the carrier or insurance-as-a-service partner already has a functional billing system for the specific insurance product being offered, all the distributing company would need to do is build an integration to their partner. This can mean a substantial increase in time-to-market with a new insurance product.

What is agency billing? 

With agency billing, the policyholder makes payments to the insurance distributor (i.e., the company selling the insurance product). With this form of billing, the distributor collects the commission upfront and makes retroactive, monthly payments to the insurance carrier. With agency billing, the company selling the insurance is responsible for calculating the amount owed, including taxes, fees, and any refund issues. The distributor is also responsible for the actual collection of money, which means they either need to integrate with a payment platform or build one from scratch. 

This isn’t necessarily a hurdle; businesses that sell goods or services online likely already have integrated billing capabilities that allow them to accept digital payments. For example, a business that sells pet products online would already have online payment infrastructure, which could likely be used for embedded pet insurance. This has the added benefit of keeping all of the company’s business data in one place. However, some payment platforms can present user experience challenges, like policyholders having to re-enter personal information on the payment platform, after already providing it on the insurance application.

For businesses that aren’t yet set up to take payments, this is a function that would need to be built out before offering insurance with the agency billing method. In almost all cases, integrating with a best-in-class payment platform will be faster and more cost-effective than trying to build a proprietary billing system in-house.

Learn more about how Boost's platform can help you manage insurance billing complexity, or dive into building your insurance program with our comprehensive guide.

Previous articles
The top 3 takeaways from our embedded insurance consumer survey
Embedded Insurance Survey Results: What We Learned From Consumers
Feb 3, 2023
You may have heard that embedded insurance is a big opportunity to grow your business, but are your customers actually interested?  We wanted to get the story straight from the source, and so in Q4 2022 Boost surveyed 650+ US consumers. We asked about their experiences with insurance, how they felt about their current insurance options, and what mattered most in their insurance purchases.  Here are the top 3 things that we learned from our consumer insurance survey results. [See Full Size] In our insurance survey, a whopping 73% of consumers had either already bought insurance from a non-insurance brand, or would be interested in doing so. While price was mentioned most often, other reasons included brand loyalty and convenience. Trust was another important factor. 62% of respondents were interested in buying financial products from a trusted brand, rather than a bank. For millennials, the number went up to 95%. First movers might have an advantage here as well. 20% of our respondents had never been offered financial products from a retail brand - but they liked the idea. All this is promising news for companies outside the traditional insurance sphere who are looking to build revenue and customer loyalty with embedded insurance. If you can deliver the product and experience consumers are looking for, the appetite is there. It’s hardly a secret that convenience is crucial to customer experience in the digital age, so it comes as no surprise that it was important to our respondents. 59% told us that they’d be more likely to buy insurance if it were offered digitally, as part of a related transaction. Younger consumers were more likely to be enthusiastic about digital insurance: nearly 70% of respondents aged 18-29 were interested in buying insurance directly through a transaction on a retail website. For half of our respondents, embedded insurance wasn’t a novel idea. 50% had already bought embedded insurance at least once, at the point of sale in a related transaction. For many consumers, insurance is a long-term purchase. 68% of our survey respondents told us they’d had the same insurance provider for at least two years, and 10% had had the same provider for more than five years. For retailers, insurance could also be an overall boost to retention. 62% of respondents said that when a retailer offered protect-your-purchase options, they were more likely to be repeat customers. Learn more about offering embedded insurance in our free guide, or contact us to get started.
Continue Reading
preview image
Get the Guide: Growing Your Revenue with Embedded Pet Insurance
Jan 12, 2022
It’s a great time to get into the pet insurance market. In fact, more than 70% of American households now own at least one pet, and with the rising cost of vet care, those households are more and more likely to insure their pets’ health. For businesses that serve pet owners, offering embedded insurance is a significant opportunity to grow their revenue and deepen relationships with their customers.  At the same time, for most pet-related companies, insurance is a whole new line of business outside their core expertise. The opportunity is there, but it can be hard to know how to get started in the pet insurance market. Partnering with Boost can make it easy to get underway! Download The 2022 Guide to Growing Your Revenue with Embedded Pet Insurance, and learn everything you need to know to get your business started with pet health insurance: Learn how pet health insurance works and what coverages are most commonly available, and explore the use cases that make pet insurance valuable to your customers. Learn which types of businesses have the best opportunity for offering white-label pet insurance, along with what it takes to actually get started (spoiler: less time than you’d think). Learn how to reach your customers with your new insurance offering, using the knowledge you already have about their preferences and buying habits for their pets. The 2022 Guide to Growing Your Revenue with Embedded Pet Insurance is free to download HERE. And as always, if you have any questions about our pet health insurance product or anything else, our team is here to help.
Continue Reading
preview image
Introducing The New Boost Brand
Nov 9, 2022
It’s an exciting day for Boost: today we’re officially launching our new brand identity, and a shiny new website to go along with it. When we started Boost in 2017, we had one big goal: to drive innovation in the insurance industry. The insurance market is highly regulated, inefficient, technologically underdeveloped and traditionally dominated by a handful of large players, who haven’t had much incentive to change with the times. This added up to an environment that made it very difficult for new players to get modern ideas to get off the ground - which is why buying insurance was still a painful, largely offline process, with often-outdated products.  We built Boost to change that. Our mission is to make the insurance industry accessible to innovators by providing the compliance, capital, and technology infrastructure they need to offer modern protection to their customers. We wanted to make it easier for new players to get to market, and to make insurance work better for everyone - the people buying it, and the people offering it. Five years later, it’s been a wild ride. We’ve built an API-based platform that enables any company to offer branded, digital insurance through their website or app, powered by one of the most advanced policy administration systems in the industry. We’ve launched a suite of first-of-their-kind insurance products like parental leave insurance, crypto wallet insurance, and management liability insurance designed for startups, as well as launching improved, more customer-centric versions of established products like business owners insurance for small businesses, cyber insurance and pet health insurance. Since Boost’s inception, we’ve powered more than 40 insurance innovators as they’ve improved the insurance buying process. I couldn’t be more proud of what we’ve accomplished. But we’re nowhere close to finished. Boost’s overall vision for the insurance industry is much bigger than where we are today: we’re building the insurance market for the modern world. Our vision is to democratize the industry through technology and innovation so everyone can have access to the protection they need, when they need it. To tackle that vision, we’ve grown a lot as a company - and it’s time for our brand to grow, too.  The updated Boost brand better reflects who we are now: a bold, modern, tech-forward leader in the insurance space. It allows us to tell our story in a way that’s easier to understand, and gives us room to scale as we continue moving forward. The central element in our new brand identity is one you’ll hear us talk about often - the idea of the platform. Boost delivers more than just robust tech infrastructure, white-labeled insurance products or access to risk capital through our managed reinsurance facility (though we have those too). With Boost, you get an end-to-end platform comprising every layer of the embedded insurance value chain, all in one turnkey solution. The platform is what gives our customers the tools to scale their insurance programs and build long-term, profitable lines of business, and that’s why we made it the cornerstone of our brand. Alongside our new brand identity, we’re also excited to unveil the all-new Boost website. Our new online home isn’t just prettier to look at - it’s also packed with more information about what we offer, and more ways to connect with us.  Boost has come a long way since the beginning, and I look forward to the next steps we take on our journey. Much more to come!
Continue Reading