January is done and your arrow aimed at renewal premiums has hit its target. Now what have you got in your quiver to boost your success rate for the rest of the year—or at least until the heavy renewal months of July and October?
Ask yourself this: What would prompt a successful food manufacturer, an established property company, a technology startup, a chain of restaurants, a mining corporation, a cross-border cold storage company and a group of law firms all to finance their business insurance premiums?
The answer lies in the cash flow needs of those businesses, along with the ability of their agent or broker to target those needs by presenting premium financing as a source of funding.
These examples are actual clients. Some of the smaller companies have been squeezed for cash as the economy weakened and credit became tight. A more common reason given for financing, however, is that the chief financial officers and accounting departments were simply managing cash flow and unlocking the underlying value of their insurance premiums.
Their objectives included wanting to expand business, finish projects, boost working capital, or smooth out the payments for their insurance costs.
Explaining and offering insurance premium finance turned out to be additional arrows in the quiver of savvy agents and brokers, and just as useful for prospecting and increasing an agent's value to clients as the early arrows were for hunting success and survival.
Given the recent recessionary environment along with credit crunch conditions, borrowers are often surprised at how fast and easy it is to complete a premium finance transaction. Under straightforward circumstances, the loan documentation is usually a two-page contract, and with the collateral tied to the unearned portion of the premium many loans provide funding within 24 hours of contract acceptance.
What's more, historically low interest rates and competition among premium finance providers, (arch…ery rivals?) have been good news for borrowers.
Your real value-add comes into play when you understand your clients' businesses and link different financing options with differing borrower needs. Although you don't need to be an expert in premium finance to advise your clients, a two-hour, in-agency continuing education (CE) course offered by some companies goes a long way to increasing understanding.
“Choosing the right arrow for your bow and shooting style is critical to getting your perfect shot.”
That piece of archery advice translates well in the premium finance environment. Like the most popular and most economically priced wooden arrow, premium finance standard plans such as the 20 percent or 25 percent down and nine equal installments attract the greatest number of borrowers and generally require the least amount of underwriting.
Experienced archers prefer a carbon composite arrow where performance is clearly superior, even though the cost is expensive. Likewise a 12-equal-premium finance-repayment plan will give your client the maximum cash flow benefit but will likely cost more.
Aluminum arrows represent the midrange in price along with consistent performance. A 10 percent down payment with 10 equal installments will give clients similar midrange benefits, whereas an eight equal repayment plan (the fiberglass arrow choice) is best for clients focused on the cost of debt service.
Another measure of arrows is the flexibility of their spines. Some premium finance companies offer flexible seasonal repayment plans that are customized to reflect the in and out cash flows of businesses such as resort hotels, vineyards or other agricultural ventures, or travel companies.
More specifically, think of the fletching (materials such as feathers) at the base of an arrow which is used to balance the weight of the arrowhead. Then consider the liability policy of a ski resort, for example, as an arrowhead and the auditable policies establishing the seasonal level of risk based, say, on sales receipts as the fletching. If you match that information in a tailored repayment plan, premium financing can help steady the ski resort's cash flow.
Finally, let's not forget those arrows that are customized to the user's body and for specific purposes. Customized finance solutions could include funding insurance for companies in Chapter 11 when they are most strapped for cash or in Chapter 7 where the trustees are able to finance the premium with a proper court order.
Scientists believe the arrow has been around for 25,000 years. Premium financing got its start in the 1950s and is quite ready to practice the wisdom of its much older role model:
“Each element must be balanced in proportion to the other and to the user to make an effective tool.”
Go ahead. Give your clients your best shot.
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