The cost of payment friction in insurance

Once a customer reaches the payment step in their insurance journey, they’re committed.

They have compared providers, reviewed coverage, considered pricing, and decided to move forward. In many digital insurance journeys, the hardest part should already be behind them.

And yet this is still where many insurers lose customers. As a matter of fact, up to 54% of drop-offs occur when preferred payment methods are unavailable. Add redirects, manual data entry, or clunky authentication on top of that, and even high-intent applicants can drop off before the policy is bound.

The issue is not always demand. Often, it is payment friction.

The problem starts at the first premium payment

Insurance journeys are rarely simple.

Applicants may need to verify their identity several times, answer detailed questions, provide personal information, review documents, and confirm policy details before they can complete a purchase. Most customers accept that level of effort when it is clearly tied to underwriting or coverage.

But the experience changes when the payment step feels disconnected, slow, or unnecessarily complex.

That second of hesitation matters.

Why payment friction matters more in insurance than in other sectors

In insurance, a payment is not just the last step in a transaction. It is closely tied to policy issuance, coverage start dates, compliance processes, and customer trust.

If the first payment fails or is abandoned, the impact can go beyond a lost sale. Insurers may also face:

• lower quote-to-bind rates
• higher acquisition waste
• more failed collections
• added contact centre volume
• more manual follow-up for finance and operations teams
• greater reconciliation complexity

And the problem does not end after onboarding.

A poor payment experience at the start can create long-term issues across the customer lifecycle, from renewals and collections to service interactions and trust. That is why insurers looking at reducing policyholder churn should not treat payments as a separate operational issue. It plays a direct role in retention as well.

Strong security is essential, but friction is not

Insurers are right to take payment security seriously. Customers do too. 76% of users worry about banking data security. In a category built on trust, payment flows need to feel secure as well as simple.

That often leads to:

• multiple redirects
• fragmented authentication steps
• inconsistent user experiences
• more opportunities for the customer to pause or abandon

Instead of reinforcing trust, the payment experience can start to undermine it.

Fraud controls can also create a different problem when they are too aggressive. False positives can block legitimate transactions, leaving applicants with a failed payment and little explanation. From the customer’s perspective, the distinction does not matter. The payment simply did not work.

For insurers, that creates an ongoing tension. Strengthen controls too heavily and conversion may suffer. Simplify too much and fraud and risk exposure can increase.

The real challenge is not choosing between security and simplicity. It is designing payment journeys where both work together.

Why traditional payment flows continue to create friction

Many of these problems are rooted in the design of traditional payment methods.

Card-based flows often rely on manual entry, static credentials, and additional verification layers. Every extra step increases the risk of error, delay, or abandonment. In insurance, where the purchase journey may already feel high-stakes, that additional friction can have an outsized effect.

For insurers, the cost is not limited to one lost application.

Payment friction can also contribute to downstream issues such as failed premium collection, more customer support contacts, and manual finance workflows. It can make insurance payment reconciliation more difficult and introduce more friction into the operational side of the business as well.

This is why insurers are rethinking the role of payments not just at checkout, but across the full policy lifecycle.

How Pay by Bank can reduce friction in insurance

This is where A2A insurance payments become especially relevant.

Pay by Bank payments remove much of the friction associated with traditional payment flows because they do not depend on customers manually entering and sharing card or bank details. Instead, the customer authenticates directly with their bank in a familiar environment.

For insurers, that can improve the payment experience in several ways:

• Direct bank authentication, no card or IBAN entry required
• A fully embedded flow, with no third-party redirects
• A single, continuous journey from quote to first premium payment
• Faster confirmation and clearer payment status

The result is a payment experience that feels more direct, more secure, and easier to complete.

That matters at the first premium step, where even small improvements can help more customers complete the journey and allow more policies to go live without delay.

Better payments improve more than conversion

The most immediate benefit of reducing payment friction is better quote-to-bind performance. Fewer applicants abandon. More complete the payment step and more policies are activated.

But the wider operational impact can be just as important.

A better payment experience can help insurers reduce failed collections, lower support demand, and simplify internal workflows. It can also support a stronger customer relationship from day one by making the buying experience feel smoother and more trustworthy.

And payments do not only matter when money comes in. They also shape how quickly and confidently money goes out. For insurers focused on customer experience, the ability to pay claimants faster is another important part of building trust through payments.

This broader view matters because insurers are no longer evaluating payments as background infrastructure alone. They are evaluating them as part of growth, retention, operational efficiency, and customer experience.

That is also why many insurers are reviewing whether their current online payment system is still fit for purpose, and whether a more modern insurance payment solution can better support digital conversion and operational performance.

Payments are now a strategic insurance issue

For a long time, payments were treated as a back-office function.

That no longer reflects how digital insurance works.

The first premium payment can influence whether a customer completes a purchase. The quality of the payment experience can influence trust. And the structure of the payment flow can shape everything from reconciliation to churn.

For insurers, payment friction is not a minor UX issue at the edge of the journey. It affects conversion, operations, and customer relationships at the same time.

The insurers that reduce that friction will do more than improve the final step of a digital purchase. They will build a stronger and more resilient payment experience across the customer lifecycle.

And in a market where trust is hard to win and easily lost, that is a significant competitive advantage.

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