It’s been an unforgettable few years. Just as the UK left the EU, the pandemic of course hit too. Both events have been described as the most significant since World War Two, creating numerous social and economic impacts in varying degrees. The full outcome of both situations is still unknown but one certainty going forward is ‘uncertainty’. With this in mind businesses need to create stability in an unstable moment in time, not to just survive, but to thrive.

Liquidity is important

Some firms are ‘financially’ better placed to manage the current situation however all businesses are having to think carefully about how they spend and preserve their capital.

Premium Credit’s latest Insurance Index shows SME cash balances are being squeezed significantly – around one in three firms (33%) say cash reserves have fallen during Covid, while 7% say their firms have no cash reserves left. Just 13% say they have seen a rise in their cash position. Businesses will need to consider cash flow more than ever in the months ahead.

There are certain everyday expenses that firms simply have to meet going forward, large or small - insurance cover being one example. Any robust business model will include comprehensive use of insurance to provide valuable protection in this fast evolving post Brexit / Pandemic era, but how will this cost be met? Insurance Premium Finance (IPF) is a strong option allowing payment for cover through convenient monthly payments, spreading the cost.

The benefits of IPF

Here are a number of reasons why business customers and individuals alike, choose to pay for cover using insurance premium finance:

• Improved cash flow: eliminates the requirement for a large up-front payment, freeing up the lump sum to use elsewhere in the business and avoids the need to liquidate other assets

• Complete cover: ensuring the upfront cost doesn’t lead to cutting corners on insurance cover, particularly where the business is faced with rising premiums at renewal

• Flexibility: multiple insurance policies can be attached to a single premium finance agreement allowing for a single payment plan and single direct debit, or you could use the product just to finance part of one policy allowing the business still to achieve in year budgets even with increased premiums

• 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

Additional benefits for brokers and insurers

It’s not just the customer who benefits. Brokers, insurers and Managing General Agents (MGAs) 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 and MGAs receive their full premium upfront in a timely manner, rather than having to collect from the customer through the policy year or account for delays in payments. Everyone’s a winner!

The future

The coming months are going to be a challenging time for businesses. Effective use of insurance premium finance will play an important role in helping firms operate efficiently whilst providing growth opportunities for brokers, insurers and MGAs too.

Owen Thomas

Chief Sales & Marketing Officer

Published in Insurance Times