The rise of Premium Finance in the wake of the pandemic

24 May 2021

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We have all had to adapt to a life changed by the pandemic. The insurance industry is no exception. One of the main changes to the insurance industry is the growing role that premium insurance will play.

In one of our latest news posts, we looked at COVID-19’s effect on the insurance industry as a whole. We started by focusing on how our industry has felt the pandemic’s impact (mainly through asset risks, capital market volatility, and weaker premium growth prospects), and ended with how our industry can contain the damage caused by the pandemic – not only to survive, but ultimately thrive.

In the wake of the pandemic, we at Fulcrum have had to adapt in order to provide our clients with the right insurance cover, to protect them when they need it the most. But how have we achieved this? Broader use of our premium financing solution is one answer. This is because it helps businesses get back onto their feet by allowing them to pay off their insurance premiums monthly (instead of one annual lump sum payment), while freeing up the cash flow required to recover.

In these tough economic times, Premium Finance has never been more relevant. This is why:

The pandemic has hardened the insurance market. This means that there has been a higher demand for insurance coverage, causing premium costs to increase – significantly in some cases. For example, when travel was banned, there was a substantial increase in travel insurance claims, which caused premiums to rise, which limited access to travel insurance for many. This is one example, but as you can imagine there are many more. Both individuals and businesses have been financially strained by increasing costs over a wide range of insurance covers (for example, workers’ compensation, health, life, travel, and trade insurance).

Because of this hardened insurance market, businesses need more payment options to help finance increased premium costs. A large, upfront, annual premium payment often isn’t accessible for many. Our premium financing solution not only makes this payment accessible for our clients, but also has the following additional benefits for businesses:

1. It frees up your cash flow.

By paying off annualised insurance monthly, instead of one lump sum payment, your business can free up substantial cash flow to reinvest in your company or in the market.

You can also claim large VAT benefits at the beginning of the year – not the end. This frees up even more cash and generates a substantial time-value-of-money saving.

2. It’s an additional source of finance, at competitive rates.

Premium finance effectively works as a more affordable alternative to a banking facility, which allows you to leverage low-cost capital to optimise your investment potential.

Premium finance costs are also typically cheaper than the additional premiums charged by insurers when converting from annual to monthly.

It’s not just the business who benefits from our premium financing solution – brokers and insurers do too. Brokers – above and beyond reduced administration and forex capabilities – receive their full annual fees and commissions upfront, and retain clients more easily as they’re less susceptible to being poached by other brokers during the term of the policy. Insurers receive their full premium upfront and on time, rather than having to collect from the customer (which poses delayed payment risks).

Although there have been endless challenges for businesses, opportunities have also presented themselves among the cracks. One such opportunity is to partner with a premium finance provider. You can contact us here – we’re the largest provider of premium finance facilities in the South African marketplace.