The Value-Add of Premium Financing
Q&A with Jim Miller, Chief Sales and Marketing Officer, FIRST Insurance Funding
While there have been signs of softened market conditions during the first half of 2024, widespread uncertainty remains: losses from natural catastrophes are getting higher every year, and the effects of inflation continue to impact commercial property and commercial auto lines.
In this Q&A, Miller discusses how premium finance could help insureds weather current market conditions and thoroughly explains everything a firm should consider when building out that offering.
Q
How do current economic, geopolitical, and environmental conditions affect premium finance or other financial services?
A
As a division of a national bank, we have financial experts monitoring the current state and future forecasts of the financial markets. We use their guidance to educate our clients and customize their premium finance programs to take advantage of market changes.
In my opinion, several important factors are currently at play:
Hard insurance market and an increasing shift to the E&S market
Continuing premium rate increases Persistent inflation
More frequent insured losses from weather-related events and other disasters
High interest rates after a long period of historically low rates
Uncertainty due to the 2024 presidential election
Global unrest and instability prompting insurers to adapt coverages and reassess risk to manage potential losses.
Market conditions make premium finance an important benefit for insureds, allowing flexibility in managing cash flow and lines of credit. It’s also important to point out that there is no penalty for an early loan payoff as circumstances change.
With increasing premiums, more businesses are taking loans to allow payments over time rather than going with lower insurance coverage. Premium finance rates are still typically lower than bank rates and can help a business smooth out its cash flow or make the best use of its capital for other priorities. Larger businesses may finance their premiums as an investment strategy if they can earn more ROI with other projects.
Q
What best practices should agents and brokers consider when leveraging a premium finance program?
A
Create controls to help directly increase profit
Improve ability to upsell additional coverages
Create efficiencies
Maximize growth potential.
Ensure agency decision-makers understand and promote the value of premium financing for insureds and the agency.
Define a revenue goal for your premium finance program.
Assign a key agency team member to manage your premium finance program.
Provide premium finance value/benefits training for your sales and service teams.
Develop an agency-wide procedure to provide a finance quote for every agency billed premium.
Leverage a dedicated premium finance partnership to obtain the best rates, terms, service, and the occasional accommodation when needed to help keep or land a key insured.
Understand the opportunity/efficiency cost of rate shopping.
Integrate your agency management system to directly import an insured’s information into a finance contract.
Schedule a regular review of your premium finance program performance.
Create a plan to incorporate a premium finance program for all mergers and acquisitions.
Ensure new employees are fully trained and educated to comply with your premium finance program and instructed not to bring other programs into the agency.
Working with a dedicated premium finance partner will:
There are also many best practices you should keep in mind:
Q
How can agents and brokers use this offering to promote agency growth?
A
Premium finance can provide a meaningful revenue stream for agencies using a dedicated partner to maximize volume. Offering a premium finance option—installment payments—with every policy quoted, whether the insured asks for it or not, will organically increase volume and provide value for the insured. When an agency integrates its management system with its premium finance partner, it can simplify the practice of offering a premium finance quote with every policy.
Q
How does a premium finance offering create client loyalty?
A
Clients appreciate extras they can’t or don’t get from other agencies. When you proactively offer your clients payment options and financial solutions, you prove that you think of them not as a transaction but as an important relationship. When you act as a consultant and provide tangible actions that show you are thinking of their success and growth, you set yourself apart from the competition and create trust and loyalty.
Q
What kind of efficiencies can agents and brokers get from a premium finance offering?
A
Understanding the customizations and workflow options your premium finance provider offers can make offering payment options a simple and easy process. Understand your provider’s digital loan process and
make sure you are paying attention to the user experience for both your team members and clients alike. This will reduce learning curves, eliminate the burden of continuous communication exchanges between all parties, and easily grow your revenue from your premium finance program.
Q
What qualities should agents and brokers look for when deciding on a premium finance partner to work with?
A
Look for a partner who is focused on organically growing their company. This helps ensure your partner’s economic stability and prioritizes new product offerings based on client needs and feedback. It signifies that they are investing in their people, their technology, and their infrastructure.
Research your partner’s ownership structure. Ensure you aren’t working with a partner with other insurance interests that create a conflict of interest or even direct competition. Find out how your partner complies with industry rules and regulations to minimize your risk exposure.
Other needs, like yours or your client’s, can influence which premium finance partner you work with. For example, based on your client’s needs, you could look for a partner to finance emerging risks like cannabis and specialized offerings for your clients in niche industries like construction, hospitality, and real estate. A partner that provides training and development for your staff or has lending resources that you can utilize to grow your agency faster and more easily could also be very valuable.
Q
Besides premium financing, what other financial services can agents and brokers use to add value for their agency? For their clients?
A
Agencies should look for assistance from experts working in the premium financing space and with a bank or lending institution specializing in agency financing and understanding how to value the unique assets and needs of an agency’s business. The M&A agency market will be reenergized by interest rates and current hardening insurance market conditions, and agencies should position themselves to catch any incoming opportunities.
A solid banking relationship with consultative service and a depth and breadth of expertise is important for agencies of all sizes. They should not miss the opportunity to strengthen their understanding of their bank’s services not just for the value to their agency, but to be able to serve as not only an insurance provider to their clients, but also as a true financial consultant who can assist with more than premium financing, such as treasury management, employee stock ownership plans, and wealth management.
Q
Do you see premium financing as especially important as commercial property and cyber risks, among others, continue to evolve?
A
Yes, a strong premium finance relationship with a partner whose perspective exceeds their rates and terms is essential. You want to know they are proactively looking out for your relationship, not just the balance sheet. Make sure they have their finger on the pulse of what is happening in the insurance marketplace and larger economic landscape, with the resources and expertise to help you make intelligent, forward-thinking decisions.
