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As the end of the financial year approaches at a rapid pace and renewal season begins, organisations are anticipating increases in insurance premiums. A range of factors including the growing incidence of natural catastrophes and the rising cost of claims is placing significant pressure on the supply and demand of insurance coverage.
The impact of these increases is flowing through to businesses, so planning for premium increases is critically important. One such way is Premium Funding, which spreads out the cost of insurance, enabling businesses to generate revenue from investing cash in growing the business, instead of insurance costs.
While capital might be available through a business’ banking channels, these lines are securitised against director guarantees and/or company assets. Using these facilities for insurance can restrict the ability of businesses to access capital to grow, purchase machinery, invest in technology, etc.
Premium Funding is an unsecured line of credit that sits off the company balance sheet and preserves company debt facilities already in place. Premium Funding spreads out the cost of insurance to your business, so it’s particularly helpful if the business has irregular cash flow.
No collateral is required to secure the Premium Funding loan because the security is the policy itself. Like sand in an hourglass, if the policy is cancelled, the remaining ‘sand’ is what you pay to secure the loan. Below is a brief explanation of how it works – from the initial policy quote through to renewal.
The application process is simpler than a secured bank loan or other debt facilities and does not require director guarantees. Premium Funding providers offer flexible payment arrangements that evenly split the total premium due into instalments. This can be flexible, with the option to pay a percentage of the premium upfront and spread the remaining amount over 6, 8, 10, or even 12 instalments.
Once the payment plan has been finalised and approved, the policies will be paid by the premium funder and settled with the underwriters.
The premium funder will deduct the agreed payments from the business’ nominated account, per the terms of the contract.
Once a funding contract is in place, there is no need to complete additional applications at renewal each year.
Your Honan Insurance broker will guide you through the process of arranging Premium Funding. Please feel free to reach out at any time to discuss your business needs.
Head of Premium Funding
