Auto Insurance Chargebacks

Every industry gets a chargeback experience that is uniquely their own. Subscription services, luxury retailers, and everyday e-commerce merchants all struggle with chargebacks, but not in the same way. Auto insurance merchants may not seem like a magnet for chargebacks, but any insurance provider can tell you that they have to spend plenty of time dealing with them too.

Unfortunately, many of the strategies developed for retail merchants won’t necessarily help insurers with the particular chargeback challenges they face on a routine basis. What do automobile insurance providers need to know about understanding, managing, and fighting chargebacks?

In most states, having auto insurance is mandatory. That’s good news in that it means there’s a locked-in customer base for insurers, but bad news in the sense that customers don’t often feel very warm and fuzzy towards businesses that they are required by law to patronize.

When customers already feel somewhat adversarial towards their insurers, things can get even more heated when they expect bigger claim payouts than they’re getting, or when they ask for reimbursement for things that aren’t covered by their policy.

Given these circumstances, it’s not surprising that friendly fraud chargebacks and subjective dispute claims are a constant problem for auto insurers.

Unless they act to get their chargeback difficulties under control, insurers may discover that chargebacks can devour revenue at an alarmingly fast rate, and incurring too many of them can get you in trouble with your payment processor. By taking the time to learn more about their chargebacks, auto insurers can figure out the best ways to prevent them.

What Are the Top Reasons for Auto Insurance Chargebacks?

Product Not Received

This reason indicates that the cardholder was expecting the insurer to provide one of their agreed-upon services, but they never received it. Usually, what this means is that the cardholder believed they were entitled to a claims payout that they never received, so they dispute their insurance bill charges in protest.

Fraudulent Transaction

The cardholder is claiming that their insurance-related charge was made without their knowledge or authorization. Using stolen cards to make bill payments is not typical activity for fraudsters, so chargebacks with fraud-related reason codes should be thoroughly investigated.

Unrecognized Transaction

These chargebacks may show up with the same reason codes as true fraud. Cardholders will often dispute unrecognized charges under the assumption that they are probably fraudulent, but it is not at all uncommon for cardholders to dispute valid charges simply because they show up with unfamiliar or confusing merchant descriptors on their billing statements.

Product or Service Unacceptable

Disputes of this nature are supposed to be worked out with the merchant and are only valid reasons for a chargeback if the merchant refuses to engage with the cardholder. Banks, however, sometimes make subjective decisions about when to allow this type of chargeback. Cardholders may file these disputes if they are unsatisfied with the amount of a claim payout.

Credit Not Processsed

If a cardholder is due a refund related to an insurance payment and does not receive it, they may be entitled to this kind of chargeback. However, they may also try to file a chargeback under this reason code if they are in a dispute or payments or claim payouts with the insurer.

What Are the Top Chargeback Challenges Faced by Auto Insurance Merchants?

Auto insurers face a number of challenges related to disputes and chargebacks. One of the most significant is their very high rate of friendly fraud chargebacks.

While merchants in all industries are likely to find friendly fraud at the top of their list of chargeback woes, insurance claim payouts are the kind of high-stakes, high-emotion situations where cardholders who don’t think of themselves as the kind of people who would perpetrate fraud will file false dispute claims out of impatience or frustration.

At the same time, it’s never safe to default to the assumption that anything that isn’t true fraud is probably friendly fraud. Claims can be complex even for seasoned insurers, and merchant error rates are high in the auto insurance industry.

It’s also important to note that friendly fraud isn’t always malicious—buyer confusion about insurance policies often drives dispute behavior, and even if these aren’t technically merchant errors, insurers can reduce these disputes by communicating more clearly with their customers.

Of course, it’s difficult to discern between friendly fraud and merchant error chargebacks without dispute intelligence that can identify the root causes of your chargebacks, which is yet another challenge. Half-baked chargeback management strategies with insufficient data analytics also leave merchants unable to determine the effectiveness of their chargeback representment efforts.

What Kind of Compelling Evidence is Needed to Fight Auto Insurance Chargebacks?

Auto insurers will face chargebacks for a wide range of reasons, and even chargebacks with similar or identical reason codes can have very different narratives underlying their claims.

To optimize your chances of having the right evidence on hand to fight friendly fraud chargebacks—no matter what their reason code—focus on creating and maintaining records of the following:

• Transaction receipts for all payments
• Signed enrollment agreements
• Order confirmations
• New customer welcome letters that outline your rules and policies
• The terms and conditions your customers signed on to, including your cancellation policies
• Receipts for credits and refunds
• Notes taken during interactions with your customer service representatives

Conclusion

Many merchants have had the same thought: why not just ignore the messy, contentious disputes, focus on improving your product and providing the best possible customer service, and write off friendly fraud chargebacks as just another cost of doing business?

The problem is, chargebacks don’t just cost you a lost sale, but also all of the fees and overhead that goes along with it. Worse yet, they get tallied and tracked and an excessive chargeback rate can cost you your ability to process credit card payments.

Auto insurance merchants are no strangers to conflict and complexity, nor the ways to mitigate the problems they can cause. By following a tested and proven chargeback management strategy, insurers can continue providing their vital and necessary service without getting bogged down in illegitimate disputes.

Thanks for following the Chargeback Gurus blog. Feel free to submit topic suggestions, questions, or requests for advice to: win@chargebackgurus.com