Tony van Niekerk, Owner/Editor of Cover Magazine chats to Delarey van Dyk, MD of Fulcrum Premium Finance. They discuss the deeply misunderstood area of Premium Finance: how it works for brokers and their clients, and the extent to which they both benefit.
Tony: Why is there a need for Premium Finance and what problems does it solve?
Delarey: Cash flow is what keeps a business afloat. Premium Finance is a funding mechanism that allows corporate and commercial businesses to finance their annual short-term insurance premiums and pay them off on a monthly basis. So clients can enjoy the benefits of an annual insurance policy while ensuring that the upfront payment requirement of that premium doesn’t impact their cash flow. It’s a simple product that’s worked for many years.
Tony: Is there an ideal candidate that will benefit from premium finance, or is it any broker?
Delarey: Any broker and any client. The larger and more complex the portfolio, the more it’ll benefit the end client. But at the end of the day, it’s a brilliant option for any client and broker. A lot of products only benefit the end client or the broker but Premium Finance manages to benefit both. The best part is that we take all the admin off the broker’s hands.
Tony: There are some other big players in the market. So what’s your unique value proposition – what sets you apart?
Delarey: Ultimately, it’s our experienced knowledge and the relationships we’ve nurtured – that’s what guides us. We’ve had relationships with clients and brokers for over 10 years. Those clients and brokers tend to renew with us every year regardless of the price or the competition. It all boils down to our close-knit team of specialists who have been working together for more than a decade with basically no staff turnover. And that follows through to our relationship with our clients. We have a 24 hour turnaround. When a broker requests a quote, we guarantee that the broker will have that quote within 24 hours. We’re solutions-oriented. We offer brokers and the clients more options than the norm – whatever suits your pocket is the option we’ll get to.
Tony: It is a very specialised product, yet there are lots of nuances in terms of the value that you get depending on who you’re doing business with.
Delarey: For brokers, it holds a whole host of benefits. The most crucial one is that the broker gets their fees and commissions paid upfront as opposed to a monthly policy where they’d receive that monthly. So it helps a broker with their cash flow, their aspirations, and growing their business. Financed clients are also less likely to move from one broker to another within the term of the policy, which enhances client retention. We handle the debit orders and credit control, so we deal with all the admin. Another benefit is that we have Forex capabilities, so we can assist in the financing of premium placed both locally and internationally.
And they pass these benefits onto the end clients. It frees up cash for reinvestment and operations. We’ve seen how hotels and restaurant businesses have done in the last year or two and it just drilled in the fact that cash flow is king. So our aim is to assist a business with its cash flow. It enables leverage at sustainable rates and Premium Finance effectively works as a better alternative to your own banking facility because your business can leverage off our balance sheet. Clients can claim substantial VAT refunds upfront as opposed to year-end. It frees up further cash and generates a substantial time value of money saving. For example, let’s say you had an annual premium of half a million rand. If you claimed your VAT upfront, you’d get about R62,000 of cash to inject back into your business – all as a result of taking a Premium Finance offering.
It’s also cheaper and more practical to package an entire portfolio together. Larger corporate or commercial clients often have bigger, more complex policies placed with various insurers and underwriters. All of those require debit orders to collect. By financing it, we lump all of those into one package. The result is that insurers get paid their premiums, brokers receive their commissions and fees, and one monthly collection is done by debit order. So it’s all packaged nicely.
Typically, if you converted a monthly policy into an annual policy, you’d get a discount from your insurer. That discount is often more than what our finance chargers would be. So the client would still benefit from the annual policy except they don’t have to pay it upfront at the end of the day.
Tony: It’s clear to me that there’s a lot of stuff that people are unaware of in terms of Premium Finance. Brokers need to have a chat to see what they don’t know about it and how they can benefit in ways they never expected.