Premium finance has been dominated by the sale rumours surrounding market leader Premium Credit. But there’s a lot more going on in the market, as Caroline Jordan explains
The world of premium finance is not sexy at first sight. Perceived to be run by grey-suited accountants, it lacks the cheeky entrepreneurs of broking or focused visionaries who head up major insurers. But still waters run deep and premium finance companies are set for some exciting times in 2008.
The future of market leader Premium Credit remains in some doubt. Over the past year, it has been widely reported that parent company MBNA had put it up for sale, with the Mail On Sunday going so far as to tip insurer AIG as the potential buyer.
But the deal never materialised.
Rivals have welcomed the ongoing uncertainty. One source comments: “It seems Premium Credit has gone on hold. They have stopped a lot of their marketing activity. No one knows what is going on and brokers don’t like this.”
But, schadenfreude aside, other providers have their own battles to fight – premium finance cannot escape the effect of the global credit crunch.
Recently, Close Premium Finance, the other major player in the field, issued a public statement saying it would continue to lend funds.
“We felt it was important to remind brokers we had no problems sourcing cash,” says Tim Wilson, sales and marketing director. “But brokers could be finding it hard to obtain cash elsewhere, so they should make more use of premium finance.”
Close recently came under fire from rivals for raising the cost of some of its financing.
Wilson explains: “Some rates did go up, but more than half of our brokers are on contracts and so were not subject to this. No one knows what is going to happen with money markets, so more brokers will be looking for certainty, such as in three-year deals.”
“If you start charging more, you could end up with a bloody nose
Mark Wooldridge, Amber Credit
Mark Wooldridge, sales and marketing director for Amber Credit, says competitiveness remains key for 2008.
“I think if you start charging more, you could end up with a bloody nose. I also think we could have an interest rate reduction early next year, so the timing is not right to up rates.”
Another potential cloud on the horizon is commission disclosure, which the FSA is currently looking at whether to enforce.
“Brokers make a small income on premium finance and it could be they will need to declare this, but we need to wait until the regulator spells out what is going to happen and what needs to be disclosed,” says Wooldridge.
Although most attention is focused on what is going to happen to Premium Credit, he adds that he would not be surprised if another entrant joined the fray next year. “A hardening market is attractive and we might see another big name launch.”
Trevor Brittain, managing director of RBS Finsure, disagrees: “Some players may sell or withdraw from the market unless rates drop, as they may find it difficult to maintain profitability in such a competitive market.”
To survive in premium finance, you need to be bullish, as all the current providers are. RBS Finsure says its loan book has grown by 30%, while Aascent’s managing director Kevin O’Flanagan says that its transactions are up by 40%.
While the on/off sale of Premium Credit remains the big talking point, one thing is certain: for the premium finance market, 2008 will be anything but grey.
Into the crystal ball
Premium finance providers gazed into their crystal balls to come up with the following predictions.
Business will grow
â€œ2008 will be a good year and 2009 an excellent one. We will start to see more premiums go beyond the cash threshold â€“ they will not be in a position to pay by cheque or through the company and so this will be good news for the finance providers. Although cost remains key, uncertainty in the money markets could mean rates increase. But, companies which start slipping on service will lose business â€“ the market is too competitive not to concentrate on this.â€
Kevin Oâ€™Flanagan, Aascent
Fewer interest-free deals
â€œI think there will be far fewer interest-free deals from insurers as the market gets harder. This is going to mean more use of premium finance.â€
Tim Wilson, Close
More brokers will switch providers
â€œItâ€™s easier to switch to a new provider now â€“ and brokers are picking up on this. The new provider can offer a running credit arrangement and does a lot of the work. Weâ€™re focused on evidence-based marketing. We invite a prospective broker to speak to one of our established ones to get a view on the difference we offer.â€
Mark Wooldridge, Amber
Greater use of technology
â€œAutomation of processing, through EDI and online, will continue to increase as it cuts cost for brokers and premium finance providers alike. The importance of customer service: brokers and customers will vote with their feet if they can't get through on the phone to speak to a real person.â€
Trevor Brittain, RBS Finsure