Progress in the quest to integrate
premium finance into a seamless, automated process
By Lori Widmer
The shift toward digitization of the premium finance market continues.
In an effort to eliminate paperwork and paper-based payments, the insurance industry has been diligently working toward full integration of premium finance into a seamless, automated process.
The need for such automation has never been greater. According to a Council of Insurance Agents & Brokers’ (CIAB) Quarterly P/C Market Survey, commercial insurance premiums jumped over 20.4% in Q1 of 2023, a trend that has slowed somewhat into 2024, but are still increasing by an average of 5.1% over all accounts. CIAB data show that premiums have increased over 28 consecutive quarters.
With the rise of insurance premiums and the expansion of premium financing activity across various insurance lines, the role of the agent or broker becomes one of helping customers afford premiums, says Josh Peterson, chief product officer of ePayPolicy. “Agencies and brokers,” he says, “have established relationships with premium financial institutions, and the technology and digitization processes are accelerating. We’re moving from an era of paper forms, emails, and Word docs into a digital experience.”
The state of premium finance
Anthony Hanes, president of Stetson Insurance Funding, sees a similar landscape. “There is an increased focus on automation, API integration and efficiency,” he explains. “Digital premium financing enables insureds to sign electronically, make down payments and even pay for policies in full.”
Such change is welcome. “The emphasis on technology is reshaping the landscape, with innovations focused on streamlining payment processes and improving workflow for both insured parties and agencies,” says Robert Przespolewski, division president for Agile Premium Finance. “This trend is likely to persist, as companies invest in digital solutions for enhanced user experience and operational efficiency.”
Like other elements of the business, premium financing is impacted by market conditions. “Similar to the insurance industry as a whole, the premium finance industry is also experiencing consolidation,” says Hanes. “The overall industry is very competitive.
“Premium finance is a key way for agents and brokers
to help customers handle large premium increases in the current market.”
—Josh Peterson
Chief Product Officer
ePayPolicy
“Many agents obtain premium finance quotes from multiple companies for their largest clients. This added competition causes the pricing to be extremely competitive on these large transactions.”
“The premium finance market can be considered robust,” says Greg Griffin, Agile’s vice president of sales and marketing. The competition is indeed intense across the board, with bank-owned companies often leading in both pricing and terms, especially for clients who have existing relationships with the bank. This cross-selling strategy can provide significant advantages to those insured.
Mel Bethel, senior vice president and director of marketing for AFCO Direct, thinks the time is perfect for agencies and brokerages to digitize. “The insurance premium finance market is experiencing growth, driven by rising premiums and economic uncertainty.
“Insured borrowers and policyholders alike are seeking ways to manage cash flow as more policies are being placed in excess and surplus markets, leading to an increased demand for financing solutions.
“Importantly,” Bethel adds, “technology is reshaping the sector, with digital platforms simplifying premium financing transactions, enabling faster approvals, and creating efficiencies for agencies and insureds.” She sees premium finance as an opportunity for agents and brokers to find a foothold as markets tighten and premiums spike, and as a way for sellers to maximize revenue while serving their clients’ best interests.
Like Hanes, Bethel sees heavy competition, but increased opportunities for clients to meet rising premium costs. “Competition has intensified in our industry, with both traditional finance providers, payment processors, and fintech companies vying for market share.
“Premium finance companies are partnering with these entities, creating opportunities to educate agencies on technology built to support their administrative processes.”
That’s also where the premium finance providers are finding ways to rise above the competition. “Premium finance companies are attempting to differentiate themselves by offering tech-driven service experiences,” says Bethel.
“One of the large opportunities is for premium finance companies to reach more customers with technology advances,” says Peterson. “Online platforms can automatically offer financing options to all customers without additional effort, paperwork, or unnecessary conversations.”
Efficiency is important right now, Peterson adds, because agents are providing more premium finance quotes. “Premium finance is a key way for agents and brokers to help customers handle large premium increases in the current market.”
How it’s used
“Insurance premium financing is often used in commercial insurance sectors, where policy premiums are high, such as general liability, property, professional liability, and workers compensation,” says Bethel. “It’s also common in personal insurance lines, particularly for auto, homeowners, and other high-value policies.”
“The premium finance market is very attractive for E&S placements and many industry segments. Transportation, real estate, healthcare and construction are some of the most prevalent industry segments that we arrange financing for.”
—Anthony Hanes
President
Stetson Insurance Funding
In some areas more than others, premium finance can be a significant benefit for clients. “The premium finance market is very attractive for E&S placements and many industry segments,” says Hanes. “Transportation, real estate, healthcare and construction are some of the most prevalent industry segments that we arrange financing for. Upfront costs, overall cash flow and rate-sensitivity drive these business classes toward financing.”
“It’s growing across all areas,” says Peterson. “We’ve seen it expanding in personal lines, in commercial, and specialty lines. Overall, the volume has certainly been increasing.”
The reasons for that increase are varied. “As insurance premiums have increased across the country, premium financing can allow an insured to afford the proper coverages by spreading the annual insurance premium over 10 to 11 months,” says Przespolewski. “Premium financing has always been a cash flow management tool and it becomes more advantageous to the insured during rising premium periods or tougher economic times.”
That can help keep budgets in check, says Hanes. “Insureds seek financing for myriad reasons. One of the most prevalent is that it helps the insured more effectively manage their cash flow. Premium finance provides the retail agent with additional payment options for their insureds.
“Retailers also receive upfront commission when a premium is financed, and many utilize premium finance as an additional revenue source for the agency.”
That last point is one Peterson echoes. “The agencies love it because they are able to offer financing to all their customers without any extra effort. It’s right there in the checkout experience. Agents are able to offer all the options the customer needs, including premium financing,” he says. “They will convert more of those customers.”
That seems to be proving true already, Peterson adds. He has seen higher use of premium financing because of the convenience. “They arrive at the policy they need with all of their payment options, a few clicks and it’s done.”
Advice for agents and brokers
That makes the job of the agent and broker much easier, say the experts. Plus, as Bethel says, offering the product along with a digital experience gives agents and brokers a competitive advantage. “For independent agents and brokers, premium finance creates a valuable service that differentiates them, strengthens client relationships, and can improve retention rates,” she says.
“And, of course, the digital experience now available through technology like AFCO Direct’s PayMyPremiums takes the administrative burden off agents and brokers’ plates.
“For insureds, premium finance can relieve cash flow pressures and allow them to maintain coverage without large upfront costs; this flexibility is truly invaluable, especially in challenging economic times,” Bethel adds.
“Importantly, technology is reshaping the sector, with digital platforms simplifying premium financing transactions, enabling faster approvals, and creating efficiencies for agencies and insureds.”
—Mel Bethel
Senior Vice President and Director
of Marketing
AFCO Direct
Still, Przepolewski says that agents and brokers shouldn’t skip getting to know the client and their business needs. “Agents and brokers need to understand their client’s financial position. Are they operating their business utilizing a bank line of credit?
“Traditional bank loans do not typically put any collateral value on the unearned premium of insurance policies. Premium finance companies do. So an insured is optimizing their borrowing capacity when they utilize premium financing. Many times, the premium finance interest rate can be lower than the insured’s line of credit interest rate.”
Griffin cautions that agents and brokers should also consider what terms the client is looking at before advising one way or the other. “The lowest down payment isn’t necessarily the best thing for the insured.”
He cites transportation as an example. “As the transportation industry encountered headwinds, many insureds faced the inability to make their premium finance monthly payments and, unfortunately, some ended up losing their insurance coverage due to non-payment. If those insureds received a premium finance loan with a low down payment, they were then facing a collections issue to deal with, as the unearned insurance premium was unlikely to pay off their remaining premium finance loan balance.”
That’s where Hanes says that a trading partnership with a premium finance firm, coupled with a digital experience, can be a win-win for any agency. “The law of large numbers suggests that the more premium finance quotes that are in the insured’s hands, the more clients that will finance. With that notion, we suggest that agents provide a premium finance quote with all E&S business.
“Financially sound clients finance, as do financially-challenged clients—and many times larger clients opt for different payment terms year-over-year,” Hanes adds. “Providing options is an overall value-add to both the insured and the agency. We work directly with retail insurance agents and brokers to provide their insureds with the most competitive premium finance solution, from both a terms and rate perspective.”
So far, agents and brokers who have offered a more digitized means of selling premium financing are reporting better results. The process of selling the product, says Peterson, is sometimes a bit of an uncomfortable conversation. Now, that conversation is much easier.
“One agency told us that when financing is available to everyone automatically, there are fewer awkward conversations about affordability. That really is a win-win for everyone,” Peterson concludes.
For more information:
AFCO Direct
afcodirect.com
Agile Premium Finance
agile-pf.com
ePayPolicy
epaypolicy.com
Stetson Insurance Funding
stetsonfunding.com
The author
Lori Widmer is a Philadelphia-based writer and editor who specializes in insurance and risk management.
