Insurance Payment Methods in 2025: Top Solutions for UK Businesses

The way customers pay for insurance is undergoing a major shift. For UK insurers, brokers, and online merchants selling insurance products such as travel, car hire, or electronics cover, choosing the right insurance payment methods is no longer just an operational decision; it directly impacts customer experience, compliance, and margins.

Unlike standard e-commerce checkouts, insurance transactions involve both incoming and outgoing flows: collecting recurring premiums and issuing fast payouts for claims. Traditional methods like card payments and direct debits still play a role, but new options such as open banking are quickly gaining ground thanks to their lower costs, faster settlement, and better security.

In this guide, we’ll break down the most relevant insurance payment methods in 2025, compare their strengths and weaknesses, and explain what UK businesses should consider when setting up their online insurance payment solutions.

Why Insurance Payments Are Unique

Insurance transactions differ significantly from standard online purchases. While most e-commerce payments are simple one-off transactions, insurance requires payment systems that can handle complexity on both sides: collecting premiums and paying out claims.

1. Recurring vs One-Off Payments

• A single-trip travel insurance policy may only need a one-time payment.
• Car, home, or health insurance often requires recurring insurance billing monthly, quarterly, or yearly.
  This mix means insurers need flexible systems that can manage both regular schedules and ad-hoc charges without risking failed transactions or missed renewals.

2. Dual Payment Flows

Insurance companies don’t just collect money, they also need to pay it out. Claims, refunds, or adjustments must be sent quickly and securely. Legacy bank transfers can delay payouts, creating frustration and eroding trust. Modern insurance claim payout systems can solve this by enabling faster settlement.

3. Compliance-Heavy Environment

Payments in the insurance industry sit under strict regulatory oversight. Insurers must consider:

• FCA and PSD2 compliance
• Strong Customer Authentication (SCA)
• Anti-money laundering (AML) checks
• Audit-ready transaction trails

This makes it crucial for insurers to choose online insurance payment solutions that are built with compliance in mind, not added as an afterthought.

4. Customer Expectations

UK customers now expect payments to be instant, mobile-friendly, and transparent. Waiting days for a claim payout or dealing with failed renewals feels outdated. The right payment system can significantly improve loyalty and satisfaction.

How Customers Pay Their Insurers in 2025

Insurance businesses today must support a mix of traditional and modern payment methods to meet customer expectations and regulatory requirements. Each option comes with its own strengths and limitations. Here are the most relevant methods insurers and online merchants are using in 2025:

1. Recurring Card Payments

Still one of the most widely used options for policies like motor, home, or health insurance. Customers set up their debit or credit card details for automatic renewals.

Pros:

• Familiar and convenient for customers
• Supports both one-off and recurring payments
• Works well across digital and mobile platforms

Cons:

• High processing costs for merchants
• Risk of failures due to card expiry, theft, or replacement
• Requires manual intervention when payments fail

2. Direct Debits

Popular for ongoing policies, direct debits automatically withdraw funds from a customer’s account at scheduled intervals.

Pros:

• Reliable for recurring insurance billing
• Convenient once set up
• Well-regulated and widely trusted

Cons:

• Slower processing compared to newer methods
• No instant confirmation for merchants
• Susceptible to chargebacks and disputes

3. Digital Wallets (Apple Pay, Google Pay, PayPal)

Gaining traction for one-off policies like travel insurance. Customers can pay in seconds using saved card details in their wallet.

Pros:

• Fast, mobile-first checkout
• Good customer adoption across age groups
• Strong security with biometric authentication

Cons:

• Still tied to card networks, so same risks as cards
• Higher fees for merchants
• Not well-suited for recurring payments

4. Open Banking & Account-to-Account (A2A) Transfers

Open banking has emerged as a powerful alternative for online insurance payment solutions. Customers pay directly from their bank account via a secure connection.

Pros:

• Instant settlement for both premiums and claims
• Lower transaction costs than card payments
• Reduced payment failures (no expired cards)
• Meets compliance with Strong Customer Authentication

Cons:

• Requires customer approval for each payment (unless VRPs expand)
• Adoption still growing among older demographics

5. Buy Now, Pay Later (BNPL)

An emerging method for higher-cost policies like private medical or pet insurance, allowing customers to spread payments.

Pros:

• Improves affordability for expensive policies
• Appeals to younger demographics
• Flexible payment structures

Cons:

• Still a niche in insurance
• Higher default risk for insurers
• Regulatory oversight increasing

The Payout Problem — Claims, Refunds & Delays

For insurers, collecting premiums is only half of the equation. The other half is paying out claims and refunds and this is often where traditional systems fall short.

1. Legacy Payout Challenges

Most insurers still rely on standard bank transfers or card refunds. These methods can take days to clear, often leading to:

• Delayed claim settlements
• Customer frustration and complaints
• Manual intervention to correct errors or reversals

For a sector built on trust, slow payouts undermine confidence and risk policy cancellations.

2. Rising Expectations for Speed

UK customers are increasingly accustomed to instant digital transactions. Waiting multiple working days for a refund or claim payout now feels outdated. Modern insurance claim payout systems are designed to deliver funds in real time, improving both customer satisfaction and retention.

3. The Compliance Dimension

Regulatory expectations add another layer of complexity:

• Insurers must prove funds go to the correct account.
• Audit-ready reporting is mandatory for payouts.
• KYC and AML checks need to be built into the process.

This makes the choice of online insurance payment solutions critical, as the wrong system could expose insurers to compliance gaps.

How Open Banking Improves Payouts

Open banking allows insurers to transfer funds directly to the same account used for premium collection. This creates:

• Instant, secure payouts
• Reduced errors and reversals
• A full digital audit trail for compliance teams

For both small brokers and large insurers, moving claims and refunds to open banking cuts costs and accelerates settlement times.

Finexer: The Open Banking Payment Solution for Insurance

For UK insurers, managing payments is no longer just about moving money; it’s about doing it faster, cheaper, and under strict regulatory oversight. That’s where Finexer comes in.

As an FCA-authorised Open Banking provider, Finexer is built to support the unique demands of the insurance industry, from premium collections to real-time claim payouts. Unlike legacy methods tied to cards or direct debits, Finexer’s API infrastructure connects directly with 99% of UK banks, enabling insurers to handle payments and compliance in one flow.

With Finexer, insurers can:

• Collect Premiums Reliably – Avoid card failures by taking recurring payments straight from customer bank accounts.
• Settle Claims Instantly – Send refunds or payouts in seconds, turning a stressful claims process into a positive customer experience.
• Stay Audit-Ready – Every payment generates a complete digital trail, making FCA and AML compliance simpler to maintain.
• Cut Processing Costs – Lower transaction fees by bypassing card networks, improving margins across policy lines.
• Deploy Faster – Go live 2–3x quicker than market alternatives, backed by hands-on onboarding support.

For insurers, this makes Finexer more than a payments provider, it’s the infrastructure layer that turns Open Banking into a practical payment method for insurance.