The need for premium financing
increases as pricing remains aggressive in the current market
By Lori Widmer
As 2025 began, the overall insurance market showed signs of stabilization. A Risk Strategies 2025 Outlook report said that property, cyber, and management liability had all the earmarks of a softer market.
There were still plenty of challenges, the report stated. Those challenges remain today—natural disasters; emerging risks, particularly surrounding AI and new technologies; and geopolitical pressures. Globally as well as domestically, there is plenty of market fluctuation as well as external pressures, but the hard market is slowly softening.
“Some of it is really cyclical right now,” says Dave Takacs, CEO of Automated Installment Systems, of the market ebbs and flows. “We are in the early stages of transition from a hard market down to a softer market.”
There are other changes afoot. In the global premium finance market that was valued at $49.5 billion in 2024 and expected to top $128 billion by 2035, according to Global Market Insights reporting, the increasing cost of premiums is driving much more interest in premium financing. Premium financing—short-term agreements to pay the premiums in installments—frees up a customer’s cash flow, allowing them to afford insurance coverage without tying up capital that is needed elsewhere.
In the current market where pricing remains aggressive, the need increases. That need is also driving more premium finance providers into the space. The additional competition, along with a good deal of market volatility thanks to the economy and increasing loss costs, are driving more consumer interest in premium finance, says Takacs. “Interest rates and the cost of capital are still much higher than they were” in the previous eight to ten years despite signs of downward pricing trends, he says.
Those “high and rising premiums,” according to Matt Libutti, senior vice president at Capital Premium Financing, are causing pain for insurance buyers right now, driven by any number of factors—a volatile economy, inflation, skyrocketing premiums in some lines of business, and higher interest rates. Industry expansion is also putting pressure on the market to give agents and their customers plenty of options, making it difficult for premium finance companies to stand out.
“A lot of small and medium-sized businesses are going to look at the cash flow. They’re going to look at the affordability of paying $1,500 a month rather than $15,000 up front.”
—Dave Takacs
Chief Executive Officer
Automated Installment Systems
Other market trends
Still, not all trends are negatively impacting the market. Libutti says the emergence of new technologies for the insurance industry is creating opportunities for agencies. “The use of AI for quoting, underwriting and activating is greatly enhancing the user experience,” he says. It’s a positive change, he says, that is freeing up staff to work on more customer-facing activities, adding to a better ROI overall.
That technology is delivering premium finance options that Takacs says are “frictionless. Less work has to go into it for the insurance agent to generate a premium finance quote. Some agents, if their customers ask about premium financing, will provide a quote. What we’re seeing is more of a desire (for agents) to provide that option up front” and give them an easy way to view and purchase their coverage online. “I like to call it the Amazon effect,” Takacs adds.
Inclusive selling
For agents and brokers to sell premium finance products successfully, Takacs says that they can start by including premium financing options at the outset. Finance companies, he says, “are trying to convince agents and brokers to make it a standard offering rather than only if somebody asks about premium financing.”
He says many of the finance companies are focusing on the technology and the integration of technology into the sales process for premium financing “so that we can make it easy for the agent and broker to generate a premium finance quote to go along with their insurance quote.” That, he says, is resulting in more buyers.
Still, for independent agents and brokers trying to sell premium financing, there can be a lot of pushback, says Libutti. That’s because, he says, too much focus is placed on the annual percentage rate (APR) and not the actual finance charge. “Maybe they’ll look on a finance agreement and see a double-digit APR. But when you look at the finance charge, it’s $250 or something that’s well worth a year’s worth of cash flow.”
Where can premium financing be used? According to the experts, nearly anywhere. Personal lines. Homeowners policies in places like California where losses are sizable. Medical malpractice, transportation, legal firms, and anywhere there is a need to stretch out payments and keep cash flowing. “Any area where they’re really wanting to focus on their cash flow,” says Libutti. “It’s really not that expensive.”
“[Thanks to technology], the ease of use has just gone through the roof. It’s much easier now, not
having to collect down payments and not having to worry about commission reconciliation.”
—Matt Libutti
Senior Vice President
Capital Premium Financing
Thanks to technology, selling premium financing is easy. “The ease of use has just gone through the roof,” says Libutti. “It’s much easier now, not having to collect down payments and not having to worry about commission reconciliation.” The customer gets a payment link, they sign up and pay online, and commissions are paid within days, he says.
“Our most successful agencies are doing a couple of things,” Libutti says. “Number one, they include premium financing as an option on everything because it does increase those closing ratios dramatically. Two, they focus on the finance charge rather than the APR, because that APR needs to be disclosed, but it’s such a short-term loan” that the APR can be deceiving. “Also, they embrace and utilize the technology that’s available. We have agencies that are still calling or emailing a quote in or getting online and doing it themselves, which we’re happy to accommodate. But there are so many other better ways to do it.”
Introducing premium financing to their clients, Takacs says, is a great way to add value to the relationship. “It’s about cash flow. A lot of small and medium-sized businesses are going to look at the cash flow. They’re going to look at the affordability of paying $1,500 a month rather than $15,000 up front.”
For Libutti, premium financing is a win-win. “We really like to focus on generating revenue for our agencies if they want to participate in the premium financing. We set it up like they own their own finance company without all the headaches. That’s an interesting concept, because everybody does win in that situation. The insured wins because the agency names the rate. The agency wins because they’re making more money than they would under any other setup.”
For more information:
Automated Installment Systems
automatedinstallment.com
Capital Premium Financing
capitalpremium.net
The author
Lori Widmer is a Philadelphia-based writer and editor who specializes in insurance and risk management.
