In the aftermath of COVID-19, Owen Thomas, Premium Credit’s Chief Sales Officer reflects on some key changes to the insurance industry and the increasing role insurance premium finance will play.

During recent months there has been necessity to adjust to a life changed by COVID-19. Examples of resilience and fortitude have been seen on a daily basis, but as society embraces the ‘new norm’ repercussions from the pandemic continue to emerge. The insurance sector, like most industries is having to adapt.

Many insurance covers, as per their design, have provided valuable protection for many thousands of people during this period, acting as an ‘economic enabler’ and will continue to provide well-being for businesses and individuals as the economy recovers.

That said, the insurance market is set to harden and premiums increase, significantly in some cases, raising the question of accessibility of cover. Travel insurance is one example hitting the headlines as people consider time away. An inability to jet off during lockdown has caused increased claims and as a result, premiums are rising at the point of renewal. Access to travel insurance, as well as a wide range of covers across personal and commercial lines, is being affected by increasing costs following the aftershock of COVID-19.

So how will the industry respond? How will it make the right cover accessible to safeguard their customers when they need it most? Broader use of Insurance premium finance is one answer.

Opportunities for brokers and insurers

In hardening markets, customers require wider payment options to help finance cover and combat the financial strain created by these rising premium costs. Insurance premium finance is a strong alternative on offer.

Having a credit facility to spread the cost of insurance premiums in convenient monthly instalments can make all the difference to a customer, freeing up liquidity to spend in other key areas. The insurance renewal becomes a more accessible opportunity once again, even in tough economic times, allowing the right cover to be secured when it’s needed.

With talk of recessionary times ahead this payment method has never been more relevant. Everyone from travel, home or car insurance customers all the way up to corporate and multinational businesses will have budgeted for an expected outlay on insurance. Where the cost has risen, or the customer values short term cash flow, a premium finance option could allow budgets still to be achieved in year despite the pandemic, whilst providing time to allocate the funds for the increase in the following year.

Premium finance also brings a wide set of additional benefits not only to the customer, but to the broker and insurer too.

Here are a number of reasons why consumers and business customers choose to pay for their insurance using premium finance:

• Improved cash flow: eliminates the requirement for a large up-front payment, freeing up the lump sum to use elsewhere and avoids the need to liquidate other assets
• Complete cover: ensuring the upfront cost doesn’t lead to cutting corners on insurance cover
• Flexibility: multiple insurance policies can be attached to a single premium finance agreement allowing for a single payment plan and single direct debit
• Retained Capital / Off Balance Sheet Lending: by using the premium finance lender's capital, customers can retain and re-invest capital in their business through an off-balance sheet item 

It’s not just the customers who benefit. Brokers and insurers also gain from the third-party relationship with a premium finance provider. As well as increasing payment options and customer choice, intermediaries receive a percentage commission for every new credit agreement they set up for their customers choosing to pay in this way. Insurers receive all their premium upfront in a timely manner, rather than having to collect from the customer through the policy year or account for delays in payments.

The credit lending regulatory risk when offering finance is also transferred to the insurance premium finance provider often freeing up internal compliance resource for the broker or insurer and changing their regulatory status to a credit broker.

With these factors combined, premium finance can be viewed as an additional income stream with commission on each finance approval. And when delivered well, often improves customer acquisition and retention, especially in the current uncertain economic environment. Insurers also get the benefit of receiving all the insurance premium up front, and not having the uncertainty or processing costs of direct debits throughout the life of the policy.

Despite there being commercial challenges ahead for the insurance industry new opportunities for business growth are also there for the taking. Partnering with a specialist insurance premium finance provider is one such option.