Financing of insurance premiums is a natural extension of the services offered by (insurance) companies, agencies, and financial institutions.
For financial institutions, it is a logical fit within their business model and can be a sustainable option for replacing low yielding securities.
For companies and agencies, it is an effortless way to bolster revenue streams, while simultaneously offering benefits like: increased client retention and better client relationship management.
According to the US Department of Treasury, $500 Billion in property and casualty insurance premiums are underwritten each year.
Thirty percent (30%) of the premiums underwritten are financed. That’s a market size of $150 Billion! The surge of the U.S. Economy guarantees an increase in this number in the coming years.
Third Eye Solutions estimates that only 10% – 15% of this $150 Billion is financed by larger, national independent premium finance companies such as First Funding. The rest of the $150 Billion is financed by small and medium sized finance companies.
Underwritten P&C Insurance Premiums Each Year
(US Department of Treasury)
Insurance Premium Financing is a low risk financing model that has been leveraged by principals of many Agencies, MGA(s) and even regional Credit Unions.
The risk of operating a premium finance company is mitigated by the unique structure of the business model. All premium finance loans have built-in collateral, in the form of the insurance premium itself. When an insured default on his/her payments, finance companies simply contact the insurance carrier and collect the remainder of the loan as unearned insurance.
With the right software on-hand, tracking of payment receivables is automated. Thus, when a client defaults on a loan, notices are sent out automatically, assuring the timely collection of the unearned insurance premium.
Technology has automated many of the labor-intensive functions associated with servicing a portfolio of premium finance loans. Implementation of a well-designed software solution makes the process of learning how to run your day-to-day operations quick and easy.
Today, technological automation takes care of the bulk of the business, be it the application of payments, the tracking of receivables, the dissemination of notices, the policy quoting, and more. Agents, insureds, and finance companies are all integrated through a system that streamlines workflow.
Technological automation ensures that the cost of running a financing business remains low. Because the day-to-day management of operations is not labor-intensive, financing operations require no additional staffing.
The right software solution will be priced to meet the needs of your company and will lead to almost immediate growth.
Your ongoing processes are managed entirely through your software solution, meaning that your software provider becomes your company’s extended IT arm.
Servers and databases are managed remotely and, with tech-support available around-the-clock, your company can do-away with costly IT infrastructure.
Launching a Premium Finance Subsidiary involves Three (3) Key Considerations:
With 20+ years of industry involvement and experience, Third Eye Solutions can help with each of the processes above and provide you with the on-going support you’ll need.
Contact us to schedule a preliminary call to find out more. We are happy to share our experience!
Requests for policy changes such as, increases in premiums and reductions in premiums are a common part of the insurance business. It is important to assess how the premium finance software handles these requests.
Q: Does the software have the capability to recalculate the monthly installment?
Q: Is a letter automatically generated with the revised payment details?
Q: Will updated statements be generated?
These are some important functions that a good premium finance software platform should provide. Similarly, the software should be able to compute and automatically adjust the finance charge (in accordance with regulations) when there is a change to the policy premium, or in the event of a mid-term payoff of the premium finance loan.
The software should withstand the examination of the State in the event of a State Audit by an examiner. If this sounds ominous, it’s not. In the context of today’s technological advancements, this is as straightforward as carrying out a Google search for “sound software”
Among other key functions to look for in a premium finance software, an enterprise system should also have the capacity to support ad-hoc functionality, like automatic handling of client refunds.
Client refunds occur across multiple scenarios – overpayment on an installment and/or cancellation of a policy resulting in a client refund, etc.
Many jurisdictions have regulations on minimum thresholds for refunds and the software should be able to account for these regulations without the need for user intervention.
Needless to say, specialized software is a necessary component of managing a book of premium finance loans — it cannot be done using general loan management software.
Luckily, with today’s technological capabilities, this specialized software is available and affordable. The key is to make sure you plan for growth and select a solution that meets your current and future needs.
One of the key success factors of businesses today is better relationship management and client retention.
A key aspect of relationship management is being able to provide personalized services.
In the premium financing business, this map to functions such as the ability to suspend late notices and/or delay policy cancellations in certain circumstances.
An enterprise premium finance software platform should provide notification and alerts of upcoming accounts that are scheduled to go into late or cancellation status.
Your Agents will form the frontline of your business. They will very likely be responsible for the premium finance contract origination process.
Q: What type of an experience does the software provide for them?
Q: Is it intuitive to learn?
Q: Is it simple to use?
Q: Does it provide the flexibility to allow for variations in the repayment terms (within the boundaries established by you)?
If Agents are not happy with the user experience, they are not going to use the software. Therefore, it is important to consider users’ perspective to ensure a good return on your investment.