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Why insurance firms should prioritise payment optionality
Find out how insurers can mitigate the risk of payment outages.
Read time: 5 mins Added: 07/05/26
The essential, time-critical nature of insurance means that the impact of payment outages or disruption tends to be passed on directly to consumers and clients. For this reason, both the Bank of England and financial regulators have been placing increasing emphasis on insurance firms’ operational resilience as an inherently important requirement to minimise client exposure to any resulting consequences.
But as digital transformation continues to accelerate, so too does firms’ reliance on technological solutions. Payments are among the most significant factor, and although most modern payment systems providers operate to high levels of overall uptime, even a small period of downtime can have a significantly detrimental impact. This is especially the case if a firm relies on relatively few payment channels, which could leave them exposed to disruption in the event of an outage.
With this in mind, why should insurance firms consider optionality above all when it comes to choosing payments providers?
Down and out?
Operational disruption is not a new problem and is only increasing in significance as firms become more dependent on technology. More than a quarter (26%) of organisations in the UK and Ireland report experiencing high-impact business outages at least once a week, and a third of CIOs and CSOs in the UK have reported that network outages have cost their organisations between £1 million and £5 million over the past year. Downtime costs Global 2000 businesses $400 billion annually, equating to $9,000 per minute of downtime, and CFOs estimate that revenue recovery takes 75 days.
The consequences of an outage extend beyond financial loss and revenue decline, also eroding customer trust, placing unnecessary strain on operations, intensifying regulatory scrutiny, heightening the risk of fraud as cybercriminals look to exploit vulnerabilities, and increasing overall liabilities.
A chain reaction
For the insurance sector, the risk of payment outages is perhaps even more significant than other industries. Delayed claims payments as a result of a payment outage risk serious consumer harm, regulatory scrutiny, and increased complaints. The resulting slow responses and delays could increase claim settlement costs and require goodwill payments. In addition, an outage could cause a surge in operational costs as slower manual processes are used in the event of downtime. This may lead to overtime payments, the duplication of work, and extended handling time per claim.
The nature of the insurance industry also means that firms are highly exposed to the impact of a payment outage. Since insurance premium payments often cluster around month-end cycles, an outage at that point could risk both revenue loss and automatic policy lapses, potentially causing other downstream operational processing issues. Finally, the year-long duration of some insurance contracts means that customer churn can be high – and payment friction can be one reason why customers may look for another provider when the time arrives.
While revenue protection, operational costs and customer retention are all important reasons to increase the focus on mitigating disruption, the motivation for doing so also runs deeper. Insurance firms and other financial institutions are now mandated to report on operational resilience as a regulatory requirement.
The Financial Conduct Authority’s rules, implemented in 2025, now require firms to ensure that they can operate important business services – of which payments is one – within their impact tolerances. Any operational incidents involving the unavailability or control of IT systems, affecting a large number of customers, or resulting in a significant loss of data or unauthorised access to information systems (among other factors) now have to be disclosed.
For this reason, insurance firms should consider their own channel dependency, and the extent of technologically distinct payment channels provided by their bank, in order to improve optionality, diversification and ultimately resilience.
Our channels, your choice
One way to improve operational resilience and reduce the risk of payment outages is to diversify how payments are initiated and routed through independent, technologically distinct channels. By considering Lloyds Bank as part of your portfolio of payment service providers, you’ll have access to our omnichannel approach – which helps to increase optionality and mitigate the impact of any disruption.
Our online, user-driven attended channel, Commercial Banking Online, provides real-time cash management, specific user controls, and multi-format file uploads. It can streamline high-volume, recurring flows like claims payments or premium refunds, and enable insurers to benefit from clear, real-time payment status updates and the efficient initiation of Faster Payments. Commercial Banking Online maintained an uptime of 99.4% throughout 2025, offering 10,569 hours of available uptime and just 61 hours of unplanned degradation.
We also offer Application Programming Interface (API)-based connectivity to provide additional pathways. Our suite of API-powered Embedded Payment solutions can be directly integrated in a firm’s internal infrastructure, allowing them to initiate near-instant, system-triggered payments without the need to log in to our online banking portal. These solutions also facilitate automated reconciliation, eliminating time-consuming processes, as well as improving fraud prevention through security-focused tools such as Confirmation of Payee. API connectivity can help insurers eliminate legacy manual processes, improve customer experiences through faster refunds, and strengthen operational resilience.
For firms requiring automation and straight-through processing, our Host-to-Host channel, Commercial Banking Direct, provides direct integration into our payments engine and removes manual intervention entirely. It supports automated payment initiation, near real-time status reporting and enhanced resilience while reducing dependency on one particular payments route. Our unattended, Host-to-Host channel reduces manual touchpoints for insurance firms, supporting them with the automated processing of large volumes of payments, including large batch payment files, bulk claims, premium refunds, commissions, Direct Debits, and scheduled payouts. Commercial Banking Direct achieved 100% uptime in 2025, experiencing just 1 hour 14 minutes of degradation.
By combining human-operated online banking, direct system integration, and modern API connectivity, we can help insurance firms to establish genuine optionality: ensuring that payment flows can be diverted or backed-up across channels to provide an omnichannel experience. This reduces outage risk, strengthens continuity plans and ensures that payments can continue, even when one route is unavailable.
Given our broad range of payment channels, we’re helping to mitigate insurance firms’ exposure to outages and disruption – think of it as an insurance choice for payments.
Mansour Davarian Managing Director, Head of Transaction Banking Solutions, Lloyds Corporate & InstitutionalOptionality is at the heart of our approach. By reducing single-channel dependencies, insurance firms can position themselves to offer a more efficient operational model and a smoother experience for their customers.
Prioritising payment optionality
Insight into insurance
Lloyds has a dedicated insurance team with over 120 years of collective experience in the insurance sector. We support every type of insurer across the value chain; from privately owned or private equity owned, through to those that are publicly listed. Over 100 insurance sector clients bank with Lloyds and of those, 97 use our cash management capabilities.
Our sectoral expertise is complemented by our technological capabilities, our investment in operational innovation, and our knowledge of the UK’s payment landscape. We process on average 180 million Bacs and 137 million Faster Payments every month. This means that one in every three account-to-account payments in the UK is processed through Lloyds Banking Group. We offer the full breadth of attended and unattended payment channels and routinely support insurers with optimising their payment processes and strengthening their operational resilience.
To learn more about our range of payment solutions, reach out to your Lloyds relationship manager today.
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