Premium finance brings businesses benefits beyond instalments

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 its 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 of it. 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’ study focusing on brokers’ current practices and perceptions. 

Most brokers – 81% (see chart 1) – 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.

Precious option

Overall, premium finance is valued and, as Paul Anscombe, CEO of broker James Hallam, said: “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 added.

However, some 19% do not regularly offer clients premium finance (see chart 1). 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 (see chart 2). 

 

Quality sales aids prove useful, as do work examples, and brokers said they also appreciated “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 did they introduce the topic of premium finance. A majority (53%) said this was when presenting the policy options (see chart 3). 

 

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. 

Multiple touchpoints

Brokers who consistently raised the option of premium finance early and used multiple touchpoints in the follow-up while communicating a wider range of benefits were most likely to convert. 

Ben Butler, managing director of Macbeth Insurance Brokers, said premium finance was typically discussed with all clients, although smaller businesses typically found it more suited to their needs.

“Premium finance is now seen as an add-on by the regulator, and it’s 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 said. “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 89% of brokers saying this was how their clients liked them to communicate, although brokers said email and phone were the most popular combination (see chart 4).

Demand shift 

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 (see chart 5). 

 

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 understood and could decide for themselves, but this may not always be true.

This research suggested that some brokers could go further in ensuring clients were fully informed about how premium finance could 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 for commercial lines at Close Brothers Premium Finance, said: “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.” 

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