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Upfront insurance costs can have a significant impact on businesses, especially when they put a sizeable dent in the budget. Using premium funding – i.e. taking out an unsecured loan to fund a spread of monthly payments – is becoming more and more popular, especially at times when the economy takes a dip and cash flow tightens.
Ross Clarke, NZ director at premium funding firm Elantis, spoke to Insurance Business about the benefits premium funding can bring to adviser clients.
“In commercial insurance you would normally pay a lump sum upfront, whereas premium funding allows you to spread your payments,” said Clarke. “It essentially offers a facility for businesses to make their payments over how many ever equal instalments they wish to take – be that six, 10 or 12 months.”
“This facility is available for every type of business – we handle insurance premiums ranging from a thousand dollars to multi-million dollar premiums paid by large multinationals,” he stated.
The product provides an additional source of commission income for the brokerage, allows clients to pay their premium more affordably, and does not involve the heavy documentation process associated with taking out a loan with a bank. According to Clarke, the method is growing increasingly prevalent in the current market.
“Depending on the brokerage, an average of 30-40% of clients will fund their premiums,” he said. “But some brokers could have figures as high as 60-80% of funds – it really depends how hard the broker pushes the facility, and the parameters of the clients. When times are good and clients have a lot of cash coming in, they likely won’t want to fund their premiums and pay interest. But when the economy is tight, they would start looking at other avenues to fund their insurance.”
Clarke says the option is a solid way of keeping clients on board, by providing alternative payment options and allowing them to purchase their insurance sustainably.
“At the end of the day, it’s a simple product which provides clients with a great benefit and allows them to spread their payments over the year,” he stated. “It wasn’t common for brokers to use premium funding 30 years ago when we started, but now it tends to take up a significant chunk of their business.”
