Budgeting for increasing insurance premiums

Brokers / 20th August 2019

It's been an eventful summer so far with UK environmental conditions and government directives both looking likely to raise insurance premiums once again. Can the blow be softened? The answer is 'yes'. Increased uptake of premium finance is one option to help alleviate this issue and create a positive outcome.

The insurance market has had a difficult few years, following on from the global natural catastrophe events of 2017 such as the HIM hurricanes into 2018 with everything from Latin American dam collapses to large losses in the global D&O, Construction and Marine markets.

Closer to home we've all seen the news bulletins of recent weeks featuring torrential rainstorms, wreaking havoc in various parts of the UK. Images of flooded homes, decimated businesses, damaged infrastructure and cancelled events have once again become commonplace. Thankfully disaster was averted at the Whaley Bridge dam - the consequences of a failing dam wall would have been unimaginable for the communities close by.

With flood waters subsiding who will pay for the damage caused? The answer in short - insurers to a large degree and ultimately as a result the insurance customer through an increase in premiums.

Environmental impact is one area causing a potential premium rise, regulatory decision making is another.

Long awaited adjustments to the Ogden rate, reflecting the return that personal injury claimants can typically expect to receive when they invest their compensation came into force on August 5. To the industry's dismay the review hasn't increased the rate to levels hoped for triggering concern that insurance premiums will rise yet further as expectations have not been met.

The consequence to raising insurance premiums in general will be significant. It will bring an inevitable wave of consumers and businesses becoming under-insured, not insured at all or having their cash flow negatively impacted - won't it? Well actually 'no', not necessarily.

Insurance premium finance is one option to help soften the blow of any future increase in premium costs and avoid aforementioned scenarios. It's offered by many insurers and brokers giving their customers a payment option that spreads the cost of the insurance premium over monthly instalments and lessens the impact of any increase in insurance costs. Everyone from the home or car insurance customer all the way up to corporate and multinational businesses will have budgeted for an expected outlay on insurance, and so a premium finance option could allow budgets still to be achieved in year, 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.

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

  • improved cash flow - freeing up the lump sum to use elsewhere
  • ensuring customers have the required level of insurance cover without being held back by the upfront cost
  • eliminates the requirement for a large upfront payment to an insurance company, particularly for new purchases
  • multiple insurance policies can be attached to a single premium finance agreement allowing for a single payment plan
  • avoids the need to liquidate other assets to ensure insurance coverage
  • by using other people's money (leveraging the premium finance lender's capital), customer can retain a significant amount of capital known as 'retained capital'

It's not just the customers that 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. As such, premium finance is viewed as an additional profit source; a second income stream with commission on each finance approval and often a way to improve client retention. 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.

As the leading premium finance provider, Premium Credit has invested significantly in the business over recent years to make sure we provide our partners and their customers with a seamless, compliant journey. Premium Credit delivers best-in-class support for our broker partners through strong relationships, deep expertise, leading-edge technology, and learning and development opportunities.

Our technology can seamlessly connect with a broker's systems and processes and provides digital self-service for payments, automation to replace manual processing and enables the consistent offering of finance for every policy a broker writes. The data also powers analytical tools which will help to improve brokers' commercial performance.

We also have a national Capability team whose sole aim is to provide bespoke training; much of it CPD accredited, to our broker partners. The team has had a significant and positive impact on customer experience, revenues and brokers' commission, and our support ensures that front line staff are properly equipped to best serve the needs of their customers.

In conclusion, it looks like an increase in insurance premiums, due to a number of factors is inevitable in the coming months. Premium finance is a viable option to help alleviate this issue with many additional benefits besides. Why not re-visit the merits of premium finance as part of your business growth plans?

Owen Thomas, Chief Sales Officer, Premium Credit

The consequence to raising insurance premiums in general will be significant. It will bring an inevitable wave of consumers and businesses becoming under-insured, not insured at all or having their cash flow negatively impacted - won’t it? Well actually ‘no’, not necessarily. Insurance premium finance is one option to help soften the blow of any future increase in premium costs.
Owen Thomas, Chief Sales Officer, Premium Credit
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