Service at a premium

Premium finance offers two clear advantages: it can be used to bring in additional commission for the broker; and it can help reduce the financial burden on the client by allowing payment of a premium in instalments over a set period of time. This second benefit is crucial now that there is increasing pressure upon businesses to find ways to manage their finances and cashflow much more tightly and effectively. Not only do currently low interest rates ensure low monthly payments on premium finance deals; but, taking account of the time value of money over the policy term and corporation tax relief on finance charges, it can actually work out cheaper to opt for insurance finance than to pay a premium in one lump sum.

But what also needs to be recognised is that the technological innovations being harnessed by many premium finance providers can also play a crucial role in improving broker efficiencies - as well as supporting their plans to be compliant with FSA regulations by 2005.

Moreover, brokers can take advantage of using third-party funding to secure business - and potentially expand their product portfolio by tapping into niche lines of insurance such as employers' liability and professional indemnity.

EL - without risk

Many brokers may be reluctant to offer EL products because of the combination of restricted capacity and soaring premiums currently dogging the sector. Indeed, anything that falls outside the packaged policy or commercial combined model can feature exceptional risks and hard-to-place proposals. But EL is an excellent opportunity, as it can be placed with minimal risk.

The British Insurance Brokers' Association claims that some 500 small businesses went out of business last year due to sharp increases in EL premiums, with a further 10,000 at risk. Faced with the rising cost of premiums, businesses are struggling to find the finance to pay for premiums upfront. This is where funding can become an invaluable asset. Providing clients with an affordable solution by offering monthly instalments and thereby taking the sting out of renewal quotes will help companies to trade effectively and legally - and give brokers good incremental business.

Professional indemnity insurance is a similarly fragile market. Every profession has been affected by liability premium increases in the last few years. The opportunity for brokers to develop this market therefore exists across many sectors: solicitors, accountants, architects, construction, and others.

Preparation

Explaining premium increases to clients with good claims records can be difficult. But forward-thinking brokers can prepare in advance for this eventuality by pre-planning premium deals and how they can be paid.

Brokers must demonstrate to clients that they have researched the best cover for them. Securing a premium and an affordable payment plan is key. But their role doesn't have to stop there - added-value services will also help keep a broker ahead of the game.

Brokers should be able to provide clients with the best possible service - so they need to know that they will receive the same kind of attention from the premium finance providers they choose. A vital element of any service is the speed and accuracy with which the financing service can be delivered - and this is where technology can provide a vital differentiator.

Many brokers have previously been deterred from offering premium finance because of the paperwork that went with it. However, the internet and new technology has revolutionised the way in which finance houses work. Now, using browser technology, many insurance-finance quotes and options can be provided in a matter of minutes.

Brokers should go for a good premium finance system that facilitates important efficiency benefits in arranging the funding. Such features might include:

- automatic acceptance and renewals;

- instant renewal and mid-term adjustments;

- one credit agreement for multiple policies;

- reduction in errors, as details do not need to be re-keyed;

- addition of new features and capabilities without any need for upgrades.

The flexibility of the technology behind a premium finance system can prove to be the deal-maker or deal-breaker for a broker. A truly interactive system should enable a broker to vary the terms of the funding being offered to different clients.

They should be able to vary client repayment periods, and the commission they add to the provider's net rate, on a client-by-client basis. A good internet-based system will enable this to be achieved online instantly - that is, without referral - maximising the profitability and efficiency of the brokerage and enabling it to provide a more customer-responsive service.

Effective use of technology by premium finance providers also means brokers can bring their service directly to customers - and even access their own website and arrange finance in real-time away from the office. And 'white-labelling' the premium finance to carry the broker's own brand - so that direct-debit transactions and other communications appear in the broker's name - will further enhance a broker's 'personalised' service.

Palm Pilots and other technology is already making internet connection on the move possible. And we expect to see the use of mobile text messaging to obtain and confirm quotes develop in the next year or so. From there, the possibilities are endless - a broker can truly operate as a financial risk advisor for its clients.

Regulatory head-start

With FSA regulation around the corner, now is the time for brokers to be repositioning themselves as professional risk consultants and service providers. And through a partnership with a truly flexible finance provider, brokers will be one step ahead in achieving this. Indeed, smaller brokers can reduce their capital requirements under PS 174 by outsourcing the handling of cash to their finance provider.

The broker market needs to wake up to the reality that they can have more control over their business boundaries and future customer base if they take the initiative and adopt a proactive approach to meeting those customers' needs. Well-advised brokers have nothing to lose and everything to gain.