BIBA's executive director Graham Trudgill told a roundtable discussion panel that insurance premium financing is critical for SMEs that face the uncertainty created by an ongoing Brexit

One of the British Insurance Brokers’ Association’s (BIBA) top chiefs says insurance premium financing is “critical” for small and medium-sized enterprises (SMEs) as Brexit causes increased uncertainty.

BIBA executive director Graham Trudgill believes companies are worrying more about managing cash flow as investors stall amid the ongoing political crisis at Westminster.

Premium financing enables policyholders to spread the cost of their insurance premium to make it more affordable. It is often a loan provided by a third-party company.

Mr Trudgill cited fears around Brexit as one of the reasons for the growing importance of insurance premium financing.

He said: “It’s all about cash flow. SMEs don’t pay for insurance in a large chunk – they have to think about it on a monthly basis.

“There’s lots of uncertainty over Brexit. This issue and insurance rates being at an all-time high mean it’s difficult for SMEs right now.

“Being able to spread the cost of insurance over instalments is certainly something that helps them out.”


Opportunity for insurance premium financing

His comments were made during a roundtable discussion that also included Arthur J Gallagher chief operating officer Simon Pearce and research company Consumer Intelligence CEO Ian Hughes.

The discussion was hosted by Premium Credit, a UK company that provides finance for insurance policies to SMEs and commercial customers.

According to a poll it commissioned, 66% of insurance brokers expect more customers to use premium finance to buy insurance this year compared to 2018.

When respondents were asked why, 58% said it was because disposable incomes for clients are falling, resulting in a greater reliance on credit.

Premium Credit hopes to take advantage of this market opportunity and offer its service to consumers and SMEs through brokers, which it offers product training to.

CEO Tom Woolgrove believes the benefits available through using premium credit have always been there, but the uncertainty brought about by Brexit has elevated its importance, especially for smaller businesses.

insurance premium finance

“People are tying up working capital by stockpiling, which puts pressure on cash flows and balance sheets,” he said.

“If uncertainty is the thing that Brexit clearly still represents, why would you take the option of big lump sum cash payments when you have the opportunity to spread them and give yourself flexibility?

“The demand for credit has always been there – this particular period just heightens the need for it.”


Crisis of underinsurance

Mr Trudgill believes premium finance is a potential solution to the crisis of underinsurance among SMEs.

He added: “We already know 40% of customers are underinsured by about 40%, so if they could pay by instalments then perhaps they could get the right levels of cover and afford to spread it over the year.”

From a broker’s perspective, AJ Gallagher’s Mr Pearce said premium credit takes the industry closer to bridging the underinsurance gap, but he believes the advice of brokers is an important part of the process.

insurance premium finance

He added: “There’s a systemic issue in the market with underinsurance, premium credit is part of the solution.

“If we think about the sales process and we think about the customer, the premium finance element of the process is not up front – and shouldn’t be.

“Therefore, it’s the broker’s job to give the right advice and explore the customer’s options in order to mitigate the underinsurance.”

In order to ensure that brokers provide the right advice to customers, Mr Woolgrove claims the company offers training to brokers and other customer facing staff.

“We believe premium finance is a real customer benefit, and if these are explained, we see good take-up of the product,” he added.