Following a collaborative research project between Close Brothers Premium Finance and Insurance Times, two experts discuss how finance options could be vital post-pandemic as businesses consider their cash flow

The financial uncertainty that came with the Covid-19 pandemic could see more businesses turn to premium finance.

Therefore, as the UK unwinds from lockdown and government financial support ceases, businesses will need to consider how they are going to support themselves, according to Laura Sweetman, sales director for personal lines at Close Brothers Premium Finance.

Insurance Times’s Premium Finance Report 2021, published in March in association with Close Brothers Premium Finance, revealed that there was a 40% increase in demand for premium finance over the last year.

However, Sweetman argued that this has started to flatten out and she does not anticipate the growth levels seen previously.

Speaking during an Insurance Times webinar in April, co-chaired by editor Katie Scott and senior reporter Clare Ruel, she told online attendees: “We definitely saw an increase. At the beginning of Q2 and Q3 last year, when people were quite unclear about what the pandemic meant, there were a lot of questions around what the government was going to do to support businesses and individuals.

”We saw a massive increase because businesses did not want to use [their] cash because of the uncertainty.”

Cash flow is king

In a hardened market, more finance options are needed because “cash flow is king” for many businesses when premiums go up, according to Steve Pratt, commercial director at Bedford Insurance.

He explained: “[Premium finance providers] are going to be key to flexibility and helping clients out and to make sure we have a renewal next year for them. Especially for industries that have been massively impacted by Covid.”

In addition, the joint research cited that 44% of brokers believed their businesses would grow by more than 10% last year - however only 26% of brokers agree with this when looking ahead at 2021.

Factors influencing this, according to Pratt, include property rates hardening, motor insurance rates dropping and a huge amount of management buyouts occurring.

He continued: “I think there’s going to be a lot less brokers in 18 months than there is today. For brokers, it’s about that personal touch with clients.”

When asked why the commercial property market was hardening, Pratt referenced the feedback he was getting from insurers.

“The rates have probably been too cheap for too long and they are pushing the rates up,” he said. ”Directors’ and officers’ insurance is going through the roof. There’s a number of hardening markets. Motor dropped last year with so few vehicles on the road and that’s to be expected again, but they will bounce back.”

Sweetman said she foresees growth for brokers in hospitality, an industry that was hit heavily by lockdown measures.

Broker resilience

Meanwhile, Pratt added: “Brokers are resilient, we are a resilient bunch. This is a new world, but who would have thought that we would be where we are today.

“There’s very much a trusted relationship between the clients and the broker – something that you build up over years that stands everybody in good stead. We have fared pretty well, but the hospitality industry has been pretty decimated.”

Speaking about the first lockdown last March, Sweetman said: “At this time, customers needed brokers more than ever as it was an unknown. I think brokers have stepped up.”

This is particularly pertinent as the research noted that 33% of brokers had SME clients that wanted to reduce their level of cover, while 59% of respondents believed that hard market conditions could also facilitate a drop in clients’ cover levels.

Furthermore, 14% of brokers said their relationships with clients suffered during lockdown.

However, Pratt said that Zoom and Microsoft Teams has been a great success to help facilitate communications during lockdown.

“Insurance is a relationship business - we can’t wait to see our brokers and have that human interaction,” Sweetman added.

“Brokers play a really important part by just knowing their customer. Brokers are really creative as well, they are able to adapt.”