Premium Financing’s Place in the Hard Market

Premium financing is an integral part of the insurance process. The premium finance company is the only entity that deals with all the parties involved in an insurance policy. In a marketplace where it is vital that the policy is funded properly, statistics show that most policies cancel due to non-payment of premium. This means leverage! Your premium finance company can act on the agent and insured’s behalf when dealing with the wholesale entities or insurance companies. The premium finance company can best serve your agency by creating working capital for your insureds, properly servicing the loan, providing flexibility for your clients in a hard market, and generate additional agency revenues.

Premium financing is traditionally used to initiate an insurance policy when the insured does not have sufficient cash flow to pay the policy in full. This is the primary function of most premium finance contracts. This allows the insured to continue to operate with their current business expenses, while budgeting the insurance premium into a convenient pay plan. In recent years, premium finance companies have been utilized more frequently due to the skyrocketing cost of insurance. The situation where the premium rose from $1,000 to $10,000 is fairly common in today’s insurance marketplace. Good relationships with your premium finance company can ensure that policies are funded allowing your clients to stay in business. But even after the loan has been funded, it is vital that the policy is serviced properly.

A premium finance company should work on the agent’s behalf to conserve insurance policies. When an insurance policy is premium financed, you have another entity that works with you to keep the policy in force. When issues arise due to payment of premium, the premium finance company can readily access any information regarding the disbursement of funds. These basic functions are what make the premium finance company such a valuable tool for your agency. Not all companies work around the same calendar. The premium finance company creates a systematic vehicle to have these companies stay compliant on all levels of the policy involving funding. In the event that issues arise due to funding or payment of monthly bill, it is comforting to know that the premium finance company can assist you in resolving these matters in a timely fashion. With that in mind, a hard market requires flexibility.

A premium finance company must be understanding and flexible. The main problem facing an agency when dealing with a finance company is the computerized automation of cancellations or insured’s having difficulty with making monthly premium payment. Your finance company can delay cancellation from the entities you work with if the situation requires it, as well as create alternative methods of payments for your clients to keep the policy in force. These issues can be time consuming for your service staff, especially if the premium finance company, the insurance company or general agent you are dealing with is unresponsive or inefficient. Time is money and the premium finance company pays you for your work.

An efficient premium finance company should reduce your agency’s overhead. Don’t let your service department work on business that your premium finance company pays you for. Depending on the state that your agency operates under, the financial code allows for the finance company to create broker incentives to generate additional agency revenues. A premium finance company can also create additional cash flow for your clients by offering lower deposit options and unconventional methods of creative financing.

These benefits can induce your prospect to move forward with your company on new business or assist you in retaining your renewal book of business. The rates and producer payouts are traditionally determined by the size of the loan. The premium finance company is a major clog in the insurance process. Give your premium finance company a call and build your relationship. Much like an underwriter they are your liaison between all the entities involved in the insurance procurement process.

There are a few things to keep in mind when choosing a finance company to service your clients’ payment schedule.

1. Timely response with quotes.
In today’s economy it is important to be fast as well as competitive. Many of your insured’s have not budgeted sufficiently for insurance costs. This requires the agent to create a payment plan that fits the client’s budget and needs.

2. Accurate information and efficiency.
The finance agreement should always show the correct information. This is a legally binding document. If the finance company fails to put the proper information on the finance agreement this can cause many issues with loan underwriting.

3. Accessibility and availability.
Your premium finance underwriter or rep should be available during your working hours. If not, they should have a support staff that works your hours.

4. Friendliness and professionalism.
Just like you work with certain carriers and wholesalers because you like the way they do business, use the same criteria to choose a finance company.

5. Knowledgeable and unconventional.
A premium finance company should have a good understanding of the marketplace and should always try to accommodate your needs.

6. Service orientated.
SERVICE, SERVICE, SERVICE!

7. Strong market affiliations.
Your premium finance companies reputation should be just as strong or stronger than your relationship with wholesale agents and brokers. The premium finance company should also assist the agent or broker in finding markets.

8. Convenience.
You should also be able to access your client’s loan information anytime you need it.

9. Reliability.
The premium finance company should be dependable, yielding the same or compatible results. You should receive the same service if you are premium financing a few policies or a lot.

10. Dedication.
Your premium finance company should be dedicated to providing you the best—the best service, the best products, and state of the art technology.

Philip Duncan and Daniel Duncan co-founded Mountain West Premium Finance in La Mesa, Calif. more than three years ago. While building the company’s business, Philip also worked as a commercial lines broker for hard to place risks. Mountain West specializes in difficult to place business in both the premium finance and the insurance marketplace. Philip can be reached at phil@financepremium.com.

Topics Agencies Pricing Trends Market