Expectations for speed and convenience among Millennial and Gen Z consumers mean fast, flexible digital payment capabilities are becoming an enormous opportunity for growth-oriented P&C insurers. They might also be key to cutting claims costs, enabling next-gen operating models, and securing a sizable slice of more than $170 billion in premiums that could be up for grabs over the next five years.

With digital transactions set to exceed $9 trillion worldwide this year and as much as $28 trillion by 2032, a business’s ability to make and receive digital payments is increasingly important across all demographic cohorts. In the US, nearly nine in 10 consumers now routinely use one or more digital payment methods. But transaction behaviors among Millennials and (especially) Generation Z point to a significant digital divide.

While 79% of Gen Z consumers regularly use digital wallets like Apple Pay and PayPal, the same is true of only 26% of consumers ages 60 and over. According to Ernst & Young, Gen Z is three times more likely than other generations to transact via card-not-present (CNP) or contactless payments, brand and retailer mobile apps, digital wallets, peer-to-peer payment apps like Venmo or Zelle, Buy Now Pay Later financing options, automated clearing house (ACH) transactions, and more. Nearly 80% of Gen Z consumers say they’d stop buying from a company that didn’t accept their preferred digital payment method.

Why it matters: Together, these generations are 142 million strong in the US—and 4 billion worldwide. In fact, Generation Z (born between 1997 and 2012) and Millennials (born between 1981 and 1996) make up 43% of the population, eclipsing Baby Boomers and Generation X. They’re not just kids anymore, either. The oldest members of Gen Z are staring down 30 while elder Millennials have hit their mid-40s—making them prime candidates for many forms of insurance.

Yet, while most industries have invested in the technologies needed to meet growing demand for a broader array of digital payment options among these cohorts, paper checks continue to comprise a significant portion of transactions in the P&C sector. In my view, this is why digital payments capabilities are so much more than just a better way for carriers to collect premiums, disburse claims, and reconcile transactions. They can be a significant differentiator.

Digital Payments: Choice of a New Generation

Unlike their predecessors, younger generations grew up with ecommerce, social media, and smartphones. Brands like Amazon, Netflix, and Apple shaped the expectations of impressionable young Millennials. Gen Z is the first generation to never know a world without these digital channels and technologies. According to a recent study, 58% of Millennials and 79% of Gen Z don’t write checks. As recently as mid-2024, half of adult Gen Z-ers reported having never written a check—and may never do so.

As I wrote last year, digital payments are no longer just incidental to the customer experience—especially in an industry that is quite literally built around financial transactions. They’re intrinsic to it. According to a study from American Express, 60% of Gen Z, for instance, plan to purchase one or more insurance types within the next 12 months, and prefer to buy coverage through digital channels. Thanks to those digital-first brands, younger consumers will seek effortless digital experiences on both desktop and mobile devices.

This is especially true when more new business comes through digital channels than through agents and call centers. According to the JD Power 2024 US Insurance Digital Experience Study, 53% of first-time policyholders start their relationships with insurers through digital channels, as do 42% of those switching from another carrier.

On the flip side, however, JD Power’s 2024 claims satisfaction survey indicates that digital experiences don’t yet meet customer expectations when it comes to shortening claims cycle times. With customer loyalty down 28% in recent years, nearly a third (29%) of customers will churn after one negative experience. According to Accenture, the price over the next five years could be as much as $170 billion.

Modern digital payment capabilities can create an opportunity to transform the customer experience, generating whole new efficiencies—and competitive advantages—for carriers in a number of ways, including the following.

Expanded Distribution

Beyond carriers’ digital properties, embedded distribution will only grow in importance for insurers seeking to do business with Millennials and Generation Z. EY estimates that more than 30% of all insurance transactions will likely occur through embedded channels by 2030. With embedded insurance, coverage is bundled in with the purchase of a third-party product or service at the point of sale—whether facilitated through the channel partner or directly by the insurer. In a 2024 survey, 89% of Millennial and Gen Z consumers reported placing transactions for insurance embedded into the purchase of other products or services within the preceding 12 months. According to Guidewire Marketplace partner One Inc, $85 billion in instant premium transactions will be embedded into the process of everything from buying airline tickets to leasing an apartment to buying a car over the next few years.

Simplified Premium Payments

Premium payments represent the single most frequent interaction policyholders have with insurers. For all the reasons I’ve mentioned, being able to easily make payments could increasingly become a must-have for digitally savvy consumers. In response, a growing number of other insurers are beginning to offer options for CNP transactions, mobile wallet payments, and more. Among Millennial and Gen Z consumers, favorite options include pay-by-link, which allows customers to make a payment via a link sent to them via text message, and pay-by-email, like that offered with Guidewire Insurtech Vanguard member SnapRefund. It’s no wonder such offerings are popular: Speed is a priority for 70% of Millennials and Gen Zers, compared to just 27% across all age groups. But 60% of insurance customers say they’ve had problems making digital payments to their carriers.

Instant Claims Disbursement

Whether it’s payment to a claimant whose home was just destroyed by a tornado or a medical provider who treated a workers’ comp claimant, P&C insurers continue to write a lot of physical checks rather than digital payments. Out of $1.37 trillion in claims payouts made by P&C insurers each year, nearly $330 billion involved physical checks or cash. By January 2024, the share of consumers receiving digital insurance claim disbursements reached 33%. But demand for such payments is as high as 66% for younger consumers. So it’s no surprise that 50% would consider ditching their current insurer for one offering instant digital claims payments deposited to their bank accounts, a debit card, or payment app. Today, the cost of processing and mailing a physical check can reach up to $12. But that’s not all. By resolving claims in one day instead of eight, carriers can cut the average cost of a claim by $374 or more.

It Takes a Platform—and a Village

The possibilities enabled by digital payments are as compelling as they are crucial to Millennial and Gen Z policyholders. As a growing number of P&C insurers seek to capitalize on the digital payments revolution, those operating with a modern cloud platform like Guidewire that combines core, data, and digital have a significant advantage. (See my recent post for more on implementing a customer-centric approach across the payments value chain.)

Look for carriers to prioritize platforms with a robust ecosystem of partners offering payment solutions that integrate with carrier core systems across billing, premium, and claim payment operations. The savviest will use these technologies to innovate products such as embedded and parametric insurance, which are both seen as key to closing the $1.8 billion global protection gap. As the digital payments options preferred by “Zillennials” continue to achieve primacy, P&C insurers will need to put strategies and technologies in place to attract and retain a generation of consumers that will reshape the industry for decades to come.