Buying services with credit cards today is so easy and universal that Visa/Mastercard commercials make fun of consumers who don't whip out their cards for purchases and thereby slow down the flow of commerce. Consumers buying insurance online are accustomed to paying by credit card, but most agents have not embraced the payment method. The reason is clear: credit cards cost the merchant money, and agents have no easy way to pass that cost along to the consumer.
In the typical merchant transaction, the credit card company will pass its transaction costs along to the merchant who pays these fees for the convenience of customers. Those costs can vary from 1.5 to 3.5 percent of the purchase charge, or even higher, depending on the company's cost of funds and assessment of the credit risk. On a thousand dollar purchase, a merchant might pay $35 to the card company, which usually ends up being passed on to the customer in the retail price of the product or service. That fee could be nearly a quarter of the agent's commission on a $1,000 premium, and agents have no authority to increase the premium to cover that cost. Dealing with credit card processing companies (middle men who negotiate their fees with credit card companies and banks) may reduce the transaction costs, but they will still be substantial.
Can the agent pass the credit card fees back to the customer? Perhaps, but there is no easy or complete solution. First, the Finance Code in Texas prohibits "surcharging" customers for credit card use. Most credit card companies allow merchants to charge a flat "convenience fee" to customers, but only for online purchases and only if alternative methods of payment are offered. This convenience fee cannot vary by the amount of the purchase or the customer, so the agent would have to arrive at an average fee to charge to recoup his costs. Since even personal lines premiums can vary from $500 to $10,000, an average fee is unlikely to cover all the costs. These fees might also be subject to the TDI rules regarding agent fees (see Fees Charged by Agents), which would require prior disclosure to the customer of the fee to be charged—a cumbersome task online. For these reasons, allowing credit card payments online is not a complete solution for insurance agents.
Recently, some processing companies have arisen to address this situation for insurance agents. These companies charge a substantial fee to the consumer to cover their transaction costs as well as pay the credit card company fees. They promise that the transaction will cost the agent nothing, and some even allow the agent to add a fee of his own onto the already healthy charges. Whether such companies are operating within the law or not is unclear, but they certainly pose an expensive solution and one that is likely to attract the attention of your customers. If you wish to begin accepting credit cards in payment of premiums, we suggest that you offer this option online only, deal with a reputable and large processing company and, if you wish, add a flat fee to help defray the costs that are passed on to you by the company.
