Premium Finance is a multi-billion market in the UK. As the name suggests, it is the financing of an insurance premium and simply makes it more affordable for individuals and companies to take out the insurance they need and become part of the financial ecosystem.
It’s the principle of financial inclusion which involves making sure people and businesses have access to affordable and valuable financial products and services.
It’s become popular for businesses that don’t want to use banks or other types of finance that might be better used for other needed items, like another vehicle for the business.
Do all brokers offer Premium Finance?
They would be completely crazy not to. Believe it or not, it is offered in the best interest of the client – but not without perks to the broker.
The individual or business buying the insurance has more cash at their disposal as they are not paying the full amount upfront. This can mean additional or multiple policy covers are bolted on for fuller and better coverage against risks. This is good for everyone in the value chain.
There are many advantages for a broker to familiarise themselves with premium financing.
It’s a value-added product on an insurance product, so, naturally there is additional money to be made by the broker. When the customer pays by instalments there is a finance charge, and a percentage goes to the broker. In fact, in 2015 the FCA said that brokers can add as much as 5% to their top-line.
“Would you like to pay in monthly instalments?” should be an automatic question and option presented, and if that suits the end customer it’s simple to tag on to the sale. The pandemic affected businesses in so many ways and there is a surge in demand for customers to pay in instalments, because this helps balance cash, manage cash flow and suits the ups and downs the global pandemic is creating.
From the customer perspective, they want their broker to be choosing the best insurance coverage and the best third-party payment finance company. That said, as it’s become such a popular option in recent years, and more so now due to COVID-19, some of the larger brokers will be the funders themselves and this will probably increase with access to loan administration software and SaaL products.
Either way customers are not having to access personal lines of credit that they may need to use for other important matters.
And paying monthly makes it easier to budget
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What’s the catch of premium finance?
Even though the monthly payments sound manageable – you are paying more for your premium in interest and charges.
Sometimes multiple policies are needed, so a spread over the year payment is simply the best way to afford and budget within the cash flow, however premium finance might not be an option if there is poor credit history. As the full insurance policy amount is being borrowed an insurer may say no if credit has been struggled with in the past.
Credit history can be improved.
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