Premium financing is a financing arrangement that enables individuals and businesses to pay for their insurance premiums over time, rather than paying for them in full upfront. It works by allowing the borrower to obtain a loan from a premium finance company to pay for their insurance premiums, with the borrower repaying the loan over time with interest.
Offering premium financing presents various advantages for insurance companies and their customers. Because premiums can cost upward of thousands or tens of thousands of dollars, it’s become an industry staple for insureds to alleviate the cost of payment.
Why Offer Premium Financing?
- Attract New Customers
Premium financing can be an attractive feature for potential customers who may be interested in purchasing insurance but are deterred by the upfront costs. By offering financing options, insurance companies can tap into a broader customer base and increase their sales volumes. This can also set you apart from competitors.
- Increase Customer Retention
Premium financing can also help insurance companies retain their existing customers. It provides a convenient and flexible payment option, ensuring that customers can continue their coverage without financial strain. By offering financing, companies demonstrate their commitment to customer satisfaction and create a sense of loyalty.
- Financial Partnerships and Diversification
Insurance companies that offer premium financing can form strategic partnerships with premium finance companies. These partnerships provide a reliable source of financing for customers, as well as potential cross-promotion opportunities.
- Revenue Generation
Premium financing can create an additional revenue stream for insurance companies. While policyholders repay their premiums over time, the insurance company receives the full premium amount upfront from the premium finance company. This can improve cash flow and generate interest income on the financed premiums.
- Mitigate Risk
Premium financing can help insurance companies mitigate the risk of non-payment. By partnering with a premium finance company, the insurance company transfers the credit risk associated with premium payment to the finance provider. This reduces the likelihood of policy cancellations due to payment delinquencies and helps insurance companies maintain a more stable customer base.
What About ePayPolicy?
ePayPolicy recently announced a new product that enables insurance companies to offer premium financing options. Finance Connect allows insurance companies to work with their existing PFC partners to offer easy financing at online checkout. This new product “is going to help insureds pay faster and bind policies sooner, helping both insurance companies and their PFC partners,” said CTO Nish Modi.
Finance Connect combines the ease of integrated online payments with financing at checkout to help improve conversion rates and eliminate back-and-forth with your PFC partners. Finance offers and terms are presented up front, and PFAs are auto-generated. Once enrolled, auto-payment and payment reminders make payments and communication with insureds effortless.
Learn more about Finance Connect here.