Premium Credit’s chief sales and marketing officer Owen Thomas tells Insurance Times on how insurance premium finance can be useful to clients, brokers and insurers alike
It’s been an unforgettable few years. Just as the UK left the EU, the pandemic hit too. Both events have been described as the most significant since the Second World War, creating social and economic impacts in varying degrees.
The full outcome of each is still unknown, but one certainty looking ahead is ‘uncertainty’. With this in mind, businesses need to create stability in an unstable time, not to just survive, but to thrive. Liquidity is important Some firms are financially better placed to manage the situation. However, all businesses are having to think carefully about how they spend and preserve their capital.
Premium Credit’s latest Insurance Index shows SME cash balances are being squeezed significantly – around one in three firms (33%) say cash reserves have fallen during the Covid-19 pandemic, while 7% say their firms have no cash reserves left. Just 13% say they have seen a rise in their cash position. Businesses will need to consider cash flow more than ever in the months ahead.
There are certain everyday expenses that firms, large or small, simply have to meet – insurance cover being one example. Any robust business model will include comprehensive use of insurance to provide valuable protection in this fast-evolving post-Brexit/pandemic era, but how will this cost be met? Insurance premium finance (IPF) is a strong option, allowing payment for cover through convenient monthly payments, spreading the cost.
The benefits of IPF
There are several reasons why business customers and individuals alike choose to pay for cover using IPF:
Improved cash flow: IPF eliminates the requirement for a large up front payment, freeing up the lump sum for use elsewhere in the business and avoids the need to liquidate other assets.
Complete cover: IPF ensures the upfront cost doesn’t lead to cutting corners on insurance cover, particularly where the business is faced with rising premiums at renewal.
Flexibility: Multiple insurance policies can be attached to a single premium finance agreement, allowing for a single payment plan and single direct debit. Or firms could use the product just to finance part of one policy, allowing the business to still achieve in-year budgets even with increased premiums.
Retained capital/off balance sheet lending: By using the premium finance lender’s capital, customers can retain and reinvest capital in their business through an off balance sheet item.
Additional benefits for brokers and insurers
It’s not just the customer that benefits. Brokers, insurers and MGAs also gain from the third-party relationship with a premium finance provider. As well as increasing payment options and customer choice, intermediaries receive a percentage commission for every new credit agreement they set up for their customers choosing to pay in this way.
Insurers and MGAs receive their full premium upfront in a timely manner, rather than having to collect from customers throughout the policy year or experience delays in payments.
Everyone’s a winner. The coming months are going to be a challenging time for businesses. Effective use of insurance premium finance will play an important role in helping firms operate efficiently while providing growth opportunities for brokers, insurers and MGAs too.