Insurance industry alert: Showbiz shows a better way to pay

A high-tech system transforming entertainment-industry payments is poised for wide use by insurance companies. It could save time and expense while rewarding agents and policyholders with better service.

Screenshot of 91st Academy Awards ceremony as seen on TV.

A business alert from EraNova Institute

These four people all have something in common. What?

• Tom Hanks
• Lady Gaga
• Tony Steigerwald
• Vicki Gunvalson

Tom Hanks and Lady Gaga are stars you know. But Steigerwald and Gunvalson?

Tony Steigerwald is a star in the insurance world, reportedly placing the biggest life policy of all time, worth $212 million.

Vicki Gunvalson is a star in two fields. A lead actor in the TV series The Real Housewives of Orange County, in her day job she runs COTO Insurance and Financial Services in Irvine, California.

What the four have in common is this: They’re all non-employees; and they get paid through a complex combination of up-front payments and residuals.

The complexity problem

For regular employees, payment systems are complex enough, what with all the benefit calculations, deductions, and tax reporting. With non-employees the complexity escalates thanks to income from multiple sources like commissions, residuals, and royalties.

This complexity has been a sore spot in the entertainment and insurance industries for decades.

In 2011, Mike Hurst and Jason Hiller decided to do something about it. Focusing initially on entertainment, they established Exactuals LLC, a financial technology startup based in Los Angeles. It now has 50-plus technical and service employees, led by Hurst as CEO.

CEO Mike Hurst, CTO Jason Hiller, and CFO Andrew Mauritzen of Exactuals LLC

The objectives were clear. “For one thing,” says Hurst, “we wanted to get rid of the millions and millions of tiny payment checks. So we built a model to accomplish that and more, saving studios, unions and other entertainment entities a tremendous amount of time and money.”

Hurst and Hiller also wanted to attack the issue of fair compensation for entertainers. “For example,” Hurst continues, “musicians and composers were losing an estimated $2 billion per year in unpaid royalties due to irregularities such as confused coding of metadata (the identification information embedded in digital media).”

As another example, the profusion of small paper checks was a bother for entertainers to endorse, deposit, and account for at tax time. “Residual checks of 40 or 60 cents were all too common,” says Hurst. “It was crazy.”

A better way soon emerged

The basic solution they came up with was PaymentHub, an automated software-as-a-service (SaaS) platform. “It’s designed to help large enterprises pay thousands of non-employees who are compensated through a combination of means such as commissions, royalties, and residuals,” says Hiller, now CTO. “PaymentHub registers clients’ data, calculates payments based on their particular preferences, aggregates payment data, distributes deposit payments to their non-employees, and provides secure online access to tax and other documents.”

Exactuals soon acquired other technical assets. One was R.AI (Royalty Artificial Intelligence), a new tool that uses machine learning to track songwriting information and rights across different platforms. This ensures proper attribution for music distributors, and rightful payments to all parties.

Through alliances, Exactuals is expanding their technical competence, and they intend to offer all applicable “fintech” and “insurtech” tools that now or will exist. For example, they recently announced an alliance with DotBlockchain, a company that leverages the distributed ledger technology that powers cryptocurrencies.

Growth pains that insurance industry can profit from

In 2017, Exactuals raised $20.6 million for expansion. Two funding rounds were led by City National Bank and TTV Capital, with participation from Stanford-StartX Fund, Entertainment Partners, and others.

This money supported further development, trial runs, and full-scale implementation with film and TV studios, unions, music labels, publishers, and organizations such as entertainment payroll companies.

Exactuals is tight-lipped about its customers. One reason is that they white-label their service: Exactuals generally remains invisible; their functionality appears only under the white-label customer’s own brand.

One very large customer that has been publicly announced is SAG-AFTRA, the premiere union representing film and TV actors, radio personalities and other showbiz professionals worldwide. We hear a lot about them at Oscar time. They have been trialing and rolling out PaymentHub since 2017. As of May 1, 2019, the system went live everywhere. All of the union’s 160,000 members gained access to the new, automated system. They can now have their residuals deposited directly into their bank accounts, eliminating the inefficiency and delay of manual processing.

The union’s experience is representative of that enjoyed across the industry by other entertainment unions as well as by movie studios and other industry players. And all of this hard-won knowledge may grease the rails of insurance adoption.

Benefits that portend bright prospects for insurance

SAG-AFTRA’s management expects big things from their digital move. Last year the union processed more than 4 million residuals payments, all manually and through the mail. By automating, they expect to exceed that volume while streamlining staff operations, reducing their carbon footprint, and improving member satisfaction.

In the past, residuals payments have been a source of controversy in the industry. Studios, directors, SAG-AFTRA and other unions have been plagued by questions and complaints.

With the new online system, accurate and complete information is now easier to maintain and track. Visibility increases since residuals statements will be accessible to all SAG-AFTRA members by PC, tablet, or smartphone from anywhere, any time. As a result, trust in the system is likely to grow.

IMPLICATIONS FOR INSURANCE

An insurance executive who is evaluating payment technology weighs in. “Our industry is only marginally better off than entertainment before Exactuals,” he says.

“There are fewer paper checks than there used to be, and some carriers consider themselves automated and technically advanced. But it’s a hodgepodge. There’s a lack of standardization and grey areas where information gets sidetracked. Then there are the many exceptions that require manual intervention, slowing things down.”

“The entertainment industry is living proof that a fully-functional, high-tech digital system really works and can get better over time,” the executive continues. “What’s more, with a few tweaks it has the potential to impact insurance just as fundamentally — standardizing and supercharging all types of complex payments in the $5 trillion industry.”

Setting the stage for broader deployment

In August 2018, Exactuals was acquired by City National Bank, long known as “the bank to the stars,” and RBC’s US banking arm. As one of the world’s most prestigious financial organizations serving all industries, City National provides Exactuals with —

  • Deep pockets for broad expansion.
  • Potential customers in all industries, including insurance.
  • The bank’s payment-related systems and services. (If they choose, PaymentHub customers may channel funds through any bank of their choice, or PayPal).

One month after the acquisition, in September 2018, Exactuals telegraphed its intentions by hiring finance and insurance veteran Andrew Mauritzen as CFO.

According to a company statement, “Mauritzen will now spearhead entry into the insurance market, adapting Exactuals’ best-in-class payment and royalty technology to streamline insurance commissions, refunds, and claims payments while establishing partnerships with insurance carriers and brokerages.”

Next steps

Mauritzen plans to proceed deliberately at first, working with three or four key players. “We’re talking with forward-looking outfits with an early-adopter mindset,” he says, “potential partners who can help us fine-tune what we’ve got, run trials, and then lead the industry to the next level of efficiency and service.”

The video below gives an overview of the current PaymentHub platform, which will soon acquire insurance-industry tweaks and branding:

There are many “fintech” and “insurtech” suppliers but no known competitors offering the breadth and depth of Exactuals’ payment services for large organizations.

In specialized niches, however, big change appears afoot. For example, in May, 2019, JP Morgan announced it was acquiring health-care payments firm InstaMed which automates medical billing in the $3.5 trillion U.S. health-care market. The deal shows that banks view the fast-changing world of payments as a space they need to be active in.

More information is available on the Exactuals website.

A business alert from EraNova Institute