Despite the concentration of the premium finance market in the hands of a few very big players, there is general agreement that the sector is always open to new competition and that if the new entrants know what they're doing it will be a healthy development, reports Claire Veares.

Competition seems to be the in thing in the premium finance market at the moment. The market leader, Premium Credit, is being challenged by the second biggest player, Prompt. Prompt has acquired Tifco, the third biggest. And Cox Insurance has come in with Can Do.

With around 30% to 40% of commercial and personal lines insurance premiums being financed in instalments, most of it through the premium finance companies, there is clearly scope for growth in the market.

Premium Credit currently finances around £1.25bn of loans a year. Its sales and marketing director, Simon Moran says this is a good £500m more than the newly merged Prompt. Although he concedes that the Tifco acquisition "gives them a good shot in the arm".

But Moran cannot say whether this is the start of more consolidation in the market or whether the move will be for new entrants to try to gain market share. He says of market developments: "There seems to be neither rhyme nor reason."

He adds that there are a lot of players on the fringes of the market and "in many ways I'm quite glad of their existence - they generate interest in premium finance".

Moran says there is scope for new entrants in the market and that the market will always attract interest while there is activity in it.

"There are still opportunities in the broker market," he says. "The question is whether everyone can be satisfied. There's not enough churn in the market."

But Moran says that any new players will have to offer a complete service or they will miss out. And he warns against new players trying to complicate things.

"Premium finance is not rocket science. New companies come in and try to complete things, thinking they are adding value," he says. "In fact, they are just making things difficult for themselves."

But in addition to being straightforward, any new offering will have to be comprehensive. "You have to provide a total solution or you will miss parts of business," he says, pointing out that Prompt, which had long resisted financing personal lines, finally entered the market a couple of years ago.

Prompt itself recently strengthened its position in the market with the £2.4m acquisition of Tifco from its Dutch owners, insurers Aegon. Prompt's estimate of how much this will take the amount loaned to is, not surprisingly, a bit higher than Moran's assessment - at around £1bn.

Tifco had been rumoured to be for sale since its US parent company Transamerica was acquired by Aegon last January, and the insurer made clear that it intended to divest itself of Transamerica's non-insurance business.

It seems likely that Prompt will assume most of Tifco's book, without needing to take on many of its staff, although Bob Golden, Prompt's chief executive is not keen to discuss redundancies. He says roles could be found for ex-Tifco employees in Prompt and its parent company, Close Brothers.

The merger of the two companies should be complete by the end of June. The company will trade under the Prompt banner and will be based in Surrey.

Welcoming competition
Golden said the crux of the decision to acquire Tifco was whether it would be able to use its IPrompt back office technology to effect a smooth changeover. "The IPrompt facility will be available to all Tifco brokers by the end of March," Golden says.

Golden also sees room for more entrants to the premium finance market, saying Prompt would welcome competition, Golden says the market is expanding. "Premium finance as an industry is increasing in size," he says. "Prompt itself has seen substantial growth this year and will continue to do so."

Premium Credit's Moran's is less keen to be drawn on the amount of growth the industry has seen recently. "It's very subjective," he says. "Our organic growth is bigger in itself than some competitors' books as a whole."

New entrant Can Do has actually been around in different guises for some time. It evolved from BFS, which was originally established 15 years ago to provide premium finance products to internal companies in the Cox Group.

In recent years a third-party finance system has been developed and premium finance facilities are now provided for brokers and intermediaries.

Alan Samuels, formerly general manager of the Norwich and Peterborough Building Society joined Can Do as its managing director last February.

A spokesman for the company says "it can add flexibility, innovation and a high level of service". The company says it already has a loan portfolio of more than £50m and is looking to expand this considerably. It aims to capture "a significant proportion" of the provincial broker market.

Regarding the market in which Can Do is now competing, the spokesman says: "We believe that competition is healthy as it serves to ensure that brokers, intermediaries and their customers receive more competitive, flexible products and improved service".

Can Do sees growth in the market coming from the increasing use of non-recourse premium finance facilities, where the finance company chases bad debts rather than the broker.

Another player in the premium finance market is Finsure, owned by insurer NIG. In 2000 it advanced around £140m in loans.

Finsure's development manager, Nick Elliman, says the survivors in the marketplace will be those that are solid and versatile.

"Those companies with a stable source of funding, a flexible attitude and first class service are likely to be those best placed to take advantage of opportunities. Finance companies unable to deliver will be the ones vulnerable to takeover."

Large potential market
Elliman says there is a large potential market for premium finance companies. But he says: "New entrants will have to quickly show that they can achieve the service levels and stability of pricing needed to be a contender."

He sees opportunities coming from brokers who have previously operated their own credit schemes. "They may consider outsourcing to a premium finance company either because they can make better use of the capital needed to fund an in-house scheme or because solvency requirements mean that it is no longer viable to do so."

Also in the market is Amber Credit, owned by the Skipton Building Society. Its director of sales and marketing, Judith Nash, is buoyant about the state of the prmium finance market. "We noticed about a 25% increase in 2000. Our business is increasing quite dramatically," she says.

Nash says competition is healthy for the market and stops things getting complacent. But she warns: "If you are going to be in the market, you have got to be in the market. Anyone new has to have a good understanding, otherwise they will fail."

Nash also thinks that there will be more outsourcing to third-party finance providers. She says that insurance companies originally offered finance to make things easier for their customers but she reckons a lot of them would like to get out of financing.