Commercial premiums have been rising fast this year. One way in which brokers and their clients are attempting to ease the pain is through premium finance.
And because the interest rates charged by premium finance providers are lower than those set by insurers, finance house demand is strong.
But choice is limited. Close Premium Finance (incorporating TIFCO) and Premium Credit dominate the market, while Singer & Friedlander, Finsure and other smaller players provide niche alternatives.
So which one should you choose? Well, it depends on rates, personal relationships and service. To get a feel of how the market is at the moment, John Jackson asked four brokers about their experiences
Broker: Williams & Williams
Region: Leicester
Provider: Premium Credit, Singer & Friedlander
Williams & Williams director John Mulligan says there is an increasing market for premium finance with commercial clients.
He says that Zurich used to offer interest-free terms, which they have subsequently withdrawn, adding: "Even though you might have business with other insurers, interest-free cover, even in a piecemeal way, is worth having.
"But, now that Zurich is charging, you might as well wrap up that policy and everything else into a single finance arrangement."
Mulligan adds: "It takes away the headache of chasing people for money, and having a roll-over agreement is even better. We have found it very useful. Generally, you can get a good rate for commercial clients."
Mulligan's company originally put all its business with TIFCO, which was subsequently bought by Prompt, now called Close Premium Finance.
He says: "The worst mistake Close Premium Finance made was that, in a climate of reduced or stable interest rates, they decided to increase their rates. That was not acceptable. If they had kept their rates, that would have been alright."
Williams & Williams went to Premium Credit, and with the move of former TIFCO chief Ian Jerrum to head up Singer & Friedlander Insurance Finance, they now give business to Singer & Friedlander as well.
Mulligan remarks: "We had all our eggs in one basket with TIFCO, and it was a big effort for us to move over to Premium Credit. If you have a direct debit with somebody, then to get another signed form, sometimes needing two signatures, sticks a bit... unless you can get it signed there and then.
"With premium finance, if the service is about right, you should be able to keep the business, as it is such a hassle changing it, because you have to get new agreements."
Broker: Ryan Insurance Group
Region: East Anglia
Provider: Premium Credit
East Anglia broker Ryan Insurance Group is a big fan of premium financing. Referring to the pricing difference between premium finance providers and insurance companies, Ryan commercial team leader Garry Sedgwick says: "Some insurers are charging between 6% and 8%,, which has never reduced, even though bank interest rates are so low.
"But with premium financing, a client wishing to pay a £5,000 premium over ten months can have a rate starting at around 4% to 4.5%, so there is a saving." He adds that for a client with many policies, instead of having various insurers taking different amounts out of their accounts each month on different dates, only one debit comes out each month with premium financing.
Sedgwick says: "If you change insurers you do not need to complete new direct debit mandates. It is flexible enough to move from one insurer to another."
Premium Credit is also online, so broker and client can log on to their website and find out what their monthly premiums are, how much has been collected, and when the next payment is due.
Sedgwick says: "If the insurer has done something incorrectly, before the client knows it, he is having more money taken from his account - it is instant with direct debit. With premium financing we can see that error, it does not affect the client's direct debit payments and we can get it corrected."
Broker: Bervale Mead
Region: Leighton Buzzard
Provider: Close Premium Finance and Premium Credit
David Newton, managing director of Leighton Buzzard-based Bervale Mead, uses both Close Premium Finance and Premium Credit.
Bervale Mead is also part of the Willis Network of brokers, whose panel of insurers provide interest-free credit on premiums, except for Zurich, which charges 3%, he says.
He adds: "We use premium finance virtually all the time, and particularly where premiums are going up. It is a massive advantage for our clients. Also, it helps solve the cashflow situation and makes accounting much easier.
"Many clients are in distress, and genuinely cannot afford the premiums. I have a friend whose £43,000 premium came in this year at £125,000 and he cannot afford it.
"If clients have to borrow from the bank through an overdraft it is hellishly more expensive, so it helps their budgets through premium financing."
With commercial rates set to continue increasing for the foreseeable future, the use of premium financing to ease the pain looks set to increase. It does not mean a big income for brokers, but will go a long way to help retain existing clients.
Broker: Reason & Co
Region: Sussex
Provider: Close Premium Finance
David Williams, account executive with Reason & Co of Lewes, Sussex, uses Close Premium Finance, and is particularly pleased with its iPrompt internet connection facility.
He adds: "Any number of policies can be added to the same agreement and it can be used for any insurer whether or not they use a direct debit facility themselves.
"As brokers, we can predict for 28 days at any one time how much money is coming into the client's account. We have use of that money, and with some insurers the credit limit can be longer than 28 days."
Reason & Co has specialist schemes for haulage contractors and removers, and they tend to be significant premiums. To be able to spread their payments over ten months is attractive.
Williams says flat interest rates with a composite insurer are around 8%, but with Close it is nearer 5%. Close also offers overriders to brokers depending on the individual case, usually around 0.5%.
He adds that clients like ten-month arrangements rather than the 12-month agreements normally arranged by insurers as "they rather enjoy the two-month holiday".
