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Blog: Lending through the cycle helps brokers to support their clients

Elliott Hayes, director of sales, commercial lines, Close Brother Premium Finance.

UK business is still showing scars from the pandemic, just as we enter a period of high inflation and potential recession. The pandemic tested balance sheets and depleted reserves as many firms struggled to stay afloat between 2020 and the beginning of this year. Now, they are again being hit from many angles, from supply chain bottlenecks to staff shortages, bank debt, raw materials, wage inflation and slowing demand. It is not a pretty picture, especially when we add the political and economic uncertainty created by the turmoil in Westminster.

Premium finance must be at the front and centre of any broker conversation during the coming renewal season as a way to help small business owners better manage cashflow. Even more so if brokers are having to address underinsurance sitting alongside premium increases.

A recent broker barometer survey for Close Brothers Premium Finance found that brokers see premium finance as a real growth opportunity. 36% have seen demand for finance increase, and 52% expect it to increase over the next year (thanks to the cost of living and cost-of-doing business crisis).

The most important reason brokers gave for dealing with premium finance providers was resilience, at 59%. In such uncertain times, brokers want to know their finance provider will be there when times get tough. The next highest reason (57%) was that expertise backs the service.

CBPF has been providing premium finance facilities to brokers for over 45 years and that longevity has taught us to be prepared for changes in the economic cycle, and while the top lines for commercial brokers have benefited from the harder market, the cost line will also been rising, whether it be from the cost of borrowing, wage inflation or energy costs. So it is vital that brokers look to their own resilience and prepare for what is undoubtedly going to be a difficult winter for the UK.

With that said what things should brokers consider?

Firstly, know your customers. In personal lines especially, data science has brought a revolution to customer insight. It is a crystal ball for our era, analysing millions of lines of data, to help brokers assess at the point of quote how they expect a customer to behave. Data science can tell whether they carry a bad debt risk, how likely are they to renew, and what are their characteristics in terms of claims, paying by instalments, or buying add-ons. Look at how you can deliver good customer outcomes through the buying journey.

Secondly, be proactive in your risk management advice. The temptation during hard economic times is to cut the cost of insuring by reducing the level of cover. It is understandable that brokers, fearing their clients may opt to rebroke, push down the price, but to do so inevitably means businesses are underinsured.

The Financial Conduct Authority estimates that up to 40% of SME businesses and research by the Royal Institute of Chartered Surveyors and the Building Cost Information Service suggests that around 80% of commercial properties have an element of underinsurance. The consequences for businesses in the event of a claim can be very serious. Out-of-pocket rebuilding costs, and long periods of business disruption, can lead to businesses reducing operations or even cease trading. This is where premium finance can play an essential role in helping brokers ensure customers receive the right levels of cover at a manageable cost.

Thirdly, create your own sector-specific playbooks to generate insight into how well-prepared they are for macro-changes. This might involve scenario planning regularly and writing playbooks to cover a host of hypothetical market risks.

Scenario analysis has been an important factor behind our own track record in anticipating and navigating our way through downturns, giving us the resilience to support over 1640 brokers and their three million plus customers.

With the headwinds on economic activity on-going, we expect customers’ ability to preserve cash is likely to be fundamental and therefore the demand for finance to remain very strong.

This presents a real opportunity for brokers to add further value to their proposition by promoting premium finance services and supporting customers through the cycle.

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