A new survey, conducted by Insurance Age and Close Brothers Premium Finance, reveals while most commercial brokers discuss premium finance with their clients, they do not always highlight other key advantages beyond spreading the cost. Rachel Gordon reports.
The current challenging financial climate and the hard market mean businesses are even more likely to be receptive to premium finance.
But while paying in instalments can be exceptionally helpful, a business may also obtain a deduction against their corporation tax charge for premium finance interest charges. Classing premium finance monthly payments as off-balance sheet financing is also possible. This can improve the health of the balance sheet, increasing capacity and making it easier for firms to borrow.
However, brokers may not always inform their clients of this and assume clients will already have awareness. There could be a knowledge gap on both sides.
A recent research project sought to uncover the true picture, with the ‘Broker Pulse Survey: Premium Finance’ survey focusing on brokers’ current practices and perceptions.
Most brokers - 82% - regularly discuss premium finance with clients at some point. Even so, brokers primarily point to instalments rather than broader business benefits.
Certainly, premium finance boosts insurance affordability, but there is also scope to increase take-up through a more informed sale.
Overall, premium finance is valued, and as Paul Anscombe, CEO of broker James Hallam, comments: “Premium finance continues to provide a precious option to clients and can help smooth a client’s cash flow and banking arrangements. Many clients value the ability to spread payments at a time of rising premiums.
“Brokers are now very much aware of the need to ensure earnings from premium finance are fair and reasonable. It should also be noted that when clients have several policies insured within a programme, they often prefer to bundle all policies up into a single premium finance deal. However, the broker needs to consider the options available and review with clients,” he adds.
However, some 18% do not regularly offer clients premium finance. They were asked what would change this; almost half of these (47%) said they needed a “better understanding of the benefits”, while others asked for reference materials and training.
Quality sales aids prove useful, as do work examples, and brokers said they also appreciate “clear and easy to read paperwork” and “an easy explanation of APR versus interest charges”. They favour case studies and clear information on costs and default fees.
Next, brokers were asked at what point do they introduce the topic of premium finance. A majority (53%) said this was when presenting the policy options.
Arguably, this may be too late to make a fully considered decision. Meanwhile, almost a third (28%) said they would do this at the initial client meeting, giving the client more time to absorb information and decide.
Brokers who consistently raise the option of premium finance early and use multiple touchpoints in the follow-up while communicating a wider range of benefits are most likely to convert.
Ben Butler, managing director of Macbeth Insurance Brokers, says premium finance is typically discussed with all clients, although smaller businesses typically find it more suited to their needs.
“Premium finance is now seen as an add-on by the regulator, and its important proper advice is provided to the client. It may be the right route for them to take to improve their cash flow situation. However, we also need to show it provides fair value,” Butler explains. He adds: “The customer also needs to decide if they can afford the costs. Providing this information clearly to the client is a priority for us - and we spend a lot of time on this work - which means the customer knows exactly where they stand regarding the cost, APR, and payment schedule.”
Email is the preferred channel for providing premium finance information with 88% of brokers saying this is how their clients like them to communicate, although brokers said email and phone were the most popular combination.
While face-to-face interactions remain a highly personal and effective way to connect with clients, their popularity has waned considerably since the pandemic, with only around half of clients preferring this method. This shift highlights the growing demand for flexibility and convenience in client interactions, particularly when it comes to financial decisions.
Regarding messaging, most brokers said, ‘improved cash flow’ was the main benefit discussed, followed by the convenience of “all insurance paid in one monthly sum”. There were far fewer mentions of finance helping to keep funding off the balance sheet, keeping lines of credit open for other expenses, and possible tax benefits.
Given that brokers may assume clients are well-informed, is there a need for more proactive education and engagement to ensure clients make informed decisions aligned with their financial goals?
Some brokers said commercial clients already understand and can decide for themselves, but this may not always be true.
This research suggests some brokers could go further in ensuring clients are fully informed about how premium finance can further support a business.
Providers should also ensure brokers have the right materials and knowledge. Brokers said they could benefit from more training, access to case studies and examples, showing an easy explanation of APR versus the interest rate charge, clear finance agreement wordings to avoid confusion around loan value and the maximum borrowing limit, and - unsurprisingly - low-interest rates.
All this will ensure the client is fully briefed on how premium finance works and why it can offer a lot more beyond spreading the cost, proving a win-win on both sides.
Elliott Hayes, Sales Director - Commercial Lines, commented “We believe premium finance should always be an option offered to clients as early as possible, regardless of their financial liquidity. While some clients might be well informed on the variety of business benefits, others may need a little more guidance to understand the potential it can unlock for them. We’re committed to providing our brokers with the tools and knowledge to help their clients navigate this and make informed decisions.”
