Benefits and advantages of premium financing in a competitive market

For insurance agencies, premium financing represents an opportunity to deliver to their insureds a higher level of client service while still maintaining their own revenue flow.

In the midst of a soft market and increasing competition through acquisition and diversification, insurance agencies are searching for opportunities to differentiate themselves in order to retain renewals while still growing their new business base.

Insureds are putting a greater demand on their agencies to deliver a variety of programs and policies, while also asking for assistance with cash flow and payment options. Premium financing is one of the most flexible and dependable payment approaches.

For decades, premium finance companies have worked with agencies and insureds to provide financing for all forms of personal and commercial insurance policies. Premium finance companies can lend at rates typically less than those of standard commercial banks, while allowing insureds to use the asset of the insurance policy to collateralize the loan.

By using the insurance policy as collateral, premium financing allows insureds to leverage their assets for other business-critical needs. They pay for the insurance as they use it because payments are tailored to their needs, extended over an agreed-upon period of time. By having their premium payments spread over regular intervals, insureds can include this payment as part of their budgeting process. This helps to smooth cash flow and expense allocation.

Premium financing also represents a cost-effective, additional credit facility with no origination costs and fixed rates for the life of the loan. There is also no pre-payment penalty for early payoff.

Premium finance companies offer varied payment plans, dependent on policy type and underwriting guidelines; from three monthly installments to 12 equal payments, including down payment. Seasonal, quarterly and multi-year repayment plans can also be arranged. Typically, payment dates are established at 30-day intervals after the effective date of the financed policy. However, many premium finance companies can adjust the payment date to suit the insured’s specific cash flow and budgeting needs.

Full commissions received

For insurance agencies, premium financing represents an opportunity to deliver to their insureds a higher level of client service while still maintaining their own revenue flow. While premium finance allows the insured to spread their payments over eight or nine months or longer, the agency still collects its full commission at the time of funding of the loan, not when all payments have been received from the insured. Since most carriers’ direct bill programs pay a portion of the commission with each monthly or quarterly payment received from the insured, premium financing can represent realization of full commission six to nine months sooner than carrier direct billing.

With premium financing, insurance agencies are also free of the burden of tracking and managing premium payments. With the billing and collection process in the hands of the finance company, insurance agencies can focus on providing to their insureds the best in insurance coverage and costs. Additionally, in many states, premium financing can result in a new revenue stream for agencies in the form of revenue-sharing arrangements with the finance company.

Finally, premium financing expands the options insurance agencies offer to their clients, allowing them to act as a true full-service agency: from risk analysis to underwriting to premium funding. Just as insureds expect agencies to deliver the best policy package to suit their needs, offering multiple payment plans, including a premium finance option, sets that agency apart in building a long-lasting business partnership with clients.

Competitive financing rates

With recent economic events creating a credit crunch, banks and other financial institutions have tightened their lending policies, making even the most basic of loans more difficult to obtain for most individuals and business owners. More so, the current challenges faced in the housing sector have had a detrimental effect on many industries, and has put an increasing burden on businesses to better manage cash flow and expenditures.

Premium financing provides competitive rates on all types of commercial insurance policies for businesses and corporations of all sizes and in all industries. Spreading payments over an established period of time allows for better control of cash flow and frees up capital for other business-critical needs. Insurance agencies benefit by delivering a reasonable payment option to their insureds while still realizing full commission. They are seen in the eyes of their insureds as a partner helping them better manage their business, gaining a client for life.

Topics Agencies