Outlook - Tapping the market

Using debt to finance purchases is certainly not a new concept for UK consumers. However, Bob Darling, managing director of Singer & Friedlander, believes that, while a large percentage of the customer base pays for its insurance with debt - whether through credit cards or overdrafts, for example - the fact remains that: "It is not necessarily via the premium finance route." This, in turn, means that accessing the untapped market has much to do with persuading customers - in effect, the end-borrower - that debt through premium finance is a better route for them than any of the other sources of funds.

Of course, working out how to access the untapped customers has to be a major focus for any premium finance company looking for growth. One of the major challenges they continue to face is lack of knowledge surrounding the products on offer.

To a great extent, the solution lies in getting the message across to brokers - offering product training and promoting benefits. Part of the problem is that premium financiers often find themselves at the bottom of a broker's list of priorities. As Darling explains: "The insurance brokers quite often see us as a kind of last resort rather than as a sales aid - on both personal and commercial lines. What we have to do is persuade the broker that premium finance is both a sales aid and an income generator."

Tim Wilson, sales and marketing director for Close Premium Finance, comments: "We have to recognise that most brokers have a reasonable working knowledge of premium finance, but what they tend to think is that it is a very bog-standard product. The reality is that there is a lot of ability to be creative and to create bespoke deals."

Of course, there is an argument that brokers have had other issues to occupy their time recently. As Nick Elliman, head of business development for Finsure, points out, last year, the main focus for brokers was on Financial Services Authority regulation. He says there are varying degrees of buy-in to premium finance: "From those who wholeheartedly embrace it and try to maximise the conversion rates to those who perhaps use premium finance as an alternative solution when insurers' own schemes do not suit."

There is general agreement that, in order for premium finance providers to survive, an understanding of the broker's requirements is a prerequisite. So what are brokers looking for in their premium finance partnerships? Peter Stoll, director of broker JL Manson & Partners, says: "We look at different packages and assess who is offering the best rates, whose administrative service seems to be the best and who has the better reputation."

David Hammond, finance director of K Drewe Insurance Brokers, has similar expectations. He comments: "We, like most users, would be looking first for excellence of service and ease of use," adding: "And then for a reasonable overrider."

In an increasingly competitive environment, most companies are working hard on their sales and marketing approach - both to attract new brokers and to retain existing accounts. Wilson says: "What we tend to do to get our message across to brokers is to train them on product knowledge, train them on our IT systems and give them the equipment to answer an informed supplementary question from the finance director of their client." A former broker himself, Wilson asserts: "If brokers are confident that they know the product and they can answer the questions from their client, then they are far more likely to go out and promote the product."

Wilson emphasises the significance of the broker focus: "The bulk of our board meetings deal with how we improve things for the broker - the processes, the service, the product."

Darling asserts that, as well as winning new brokers, it is also important to look after existing brokers. He believes they are looking for: "A solid, reliable service and one that does not cost them anything in effort to employ." He adds: "With all the additional costs of running a business through the FSA, the last thing they want is to be using a third party that generates cost. Our job is meant to be to reduce their costs and make life much easier."

Finsure is developing a sales support function to sit between the sales unit and the operational side. Elliman explains: "We are very conscious of the fact that we are operating in a competitive, quite aggressive premium finance market at the moment and we are placing an increasing emphasis on managing relationships with our existing brokers and also ensuring that those new brokers that do come on board are extremely well looked after."

Effective use of technology is one way that providers can improve the efficiency of service to brokers. Wilson points to Close's technology platform i-prompt. He says: "It is known for being extremely robust and is quick and easy to use. The benefit is that, once people use it, they can complete a renewal in under a minute."

Darling explains: "The market basically is one product and I cannot make my money taste or smell any better, but what we can do is try and deliver it in a more efficient way. That is where, particularly on personal lines, the Benfield acquisition and all of the electronic data interchange that we got out of that has been a massive help to the sales team."

But, some brokers are still wary of being bombarded with too much technology. Hammond warns: "A lot is said about the technological advancements they are making, but the need for excellence in traditional methods should not be ignored. The nature of our business is such that currently ours is a manual process and I am sure we are not alone."

Regulation presents another area where companies can help out their broker partners. With the advent of FSA regulation and, in particular, the focus on handling client money, Stoll points out that premium financing can help brokers to comply. Wilson expands on this, observing: "Premium finance can give certainty of collection and payment in effect," and adding that, "Brokers also need to get money in earlier - partly to meet FSA requirements, partly because insurers are imposing tighter terms of credit." (see Premium Finance & Regulation, p10)

In addition to competing with each other, premium finance providers face competition from outside their own particular industry, with insurers also offering flexible payment options. But how much of a threat does this represent? From a broker's perspective, Stoll says that premium finance tends to offer better value for money than the direct-debit arrangements offered by insurers. He adds: "Also, using premium financing, we can consolidate all of a client's direct debits into a single premium finance arrangement, rather than having lots of different direct debits with different insurers."

Wilson points to the fact that some insurers have established a reputation for offering interest-free finance. In general, though, as he explains, the reality is that there is no such thing as 'free money'. He also points to market cycles as affecting finance deals from insurers. "The other aspect is a soft-market phenomenon and a number of insurers now, rather than offer a further rate reduction, are happy to throw in low interest or interest-free finance just to get the deal secured. But those deals tend to go away as the market hardens. It is a cycle and we are right in the trough of a soft market at present."

Wilson adds that, while, to an extent, insurers are competitors: "It is not what they do, it is not what they want to be doing, whereas we and our competitors are long-term specialists in the area."

Premium finance is a growing industry, and one that is proving competitive, with many now having to work hard for market share. The established market leaders will need to watch their backs, with several of their rivals now vying for third place.

The good news for brokers is that premium finance providers are working hard to meet their needs - and that means better service, efficient administration and competitive rates. The good news for premium finance providers is that the message seems to be getting through. As Darling comments: "I think brokers are listening more and more and I think penetration generally is getting better for our industry."

WHAT THE EXPERTS SAY

Lack of product knowledge continues to be a problem for premium finance companies. Is there any argument for the industry to work together to raise awareness?

Bob Darling, managing director, Singer & Friedlander

It is unrealistic to think of the industry undertaking joint advertising. The Finance and Leasing Association, however, has a small premium finance department. In such areas as changes to the Consumer Credit Act - things that have a big impact on us - that is how we are represented and that is how we work together. Being a member of the FLA does promote premium finance as being an honest and genuine part of the finance industry.

Tim Wilson, sales and marketing director, Close Premium Finance

Through the FLA, obviously, premium financiers will discuss areas of common interest. What that is less likely to become is a marketing forum or anything of that sort. In terms of educating the broker market place, we have a very extensive advertising, marketing, public relations campaigns, etc., very much aimed at raising broker awareness of the opportunities. Some of our competitors are in the same position. So, as a collective effort - albeit not collaboratively - premium financiers do take a pretty high profile through advertising and other forums and through the trade press.

Nick Elliman, head of business development, Finsure

Press articles all help in raising awareness but maybe more of a unified effort to push the benefit to brokers would help all of us. It does not necessarily have to be a formal objective to raise awareness among all the premium finance providers. Perhaps just to be conscious of the fact that it benefits all of us to have brokers who understand the wider benefits of premium finance, who are evaluating which provider they choose from an informed position - that is a good thing for all of us. And it is good for the brokers too.