How Premium Finance Schemes Help Banks Support the Business Expansion Plans of their Clients

Highlights:

• Introduction
• Reasons behind the rising demand for premium finance
• Ingenious product launches in the industry

Premium finance is a modern financing mechanism wherein financial institutions lend money to an individual, an industrial firm, or a commercial enterprise to cover the cost of insurance premiums. While there are specialized organizations that deal with such cases, sometimes insurance companies themselves offer premium financing services to help their clients manage their operations seamlessly. The growing demand for different indemnity schemes from domestic, commercial, and industrial sectors has increased the popularity of this new fiscal mechanism.

Additionally, the presence of multinational corporations such as JPMorgan Chase & Co., Agile Premium Finance, IPFS Corporation, US Premium Finance, etc., has further expanded the scope of the industry. Though premium finance services are available to regular customers also, generally, they are used by high-net-worth individuals, corporate entities, entrepreneurs, and businessmen to avoid upfront payment of their insurance policy’s premium amount. The third-party financing company, on behalf of its clients, pays the premium and offers a monthly or quarterly program that allows the client to repay the amount in installments with interest.

Increasing demand for premium financing services creating favorable conditions for the industry’s growth

The premium finance industry is anticipated to expand its revenue share significantly in the coming period. The sector accounted for $47.8 billion in 2022 and is expected to surge ahead at a CAGR of 11.5% during 2023-2032. In the past few years, the number of businesses applying for premium financing services has increased significantly. During the pandemic, many companies faced huge losses due to lockdowns, supply chain disruptions, low sales, reduced demand, and high raw material prices. In such a scenario, these enterprises needed a new financing mechanism that offered insurance services at lower costs, thus allowing them to subscribe to indemnity programs without having to sell off their assets.

The most important benefit of premium financing services is that they aid in enhancing the overall cash flow of the business, thereby improving its chances of expansion and growth. By allowing their commercial clients to pay for insurance premiums in installments, these services free up the capital available with the companies for more productive tasks and investments. The ability of premium financing mechanisms to prevent the disruption of an enterprise’s line of credit has made it quite popular among small and medium-scale businesses in various end-use industries.

Most of the banks and financial institutions that offer premium finance levy interest on their installments. However, many times, these interest payments are tax deductible which further reduces the liability on the client company. This additional capital is further used by companies to enhance their customer base and brand value. Also, these third-party institutions allow businesses to classify premium finance payments as off-balance sheet transactions. This helps the client improve its balance sheet significantly, thus enhancing the possibility of getting access to funds from various sources more easily. Additionally, the growing integration of digital technologies such as Artificial Intelligence, data analytics, etc., has helped banks and financial organizations to expand their reach and cater to the diverse set of demands of the business community more effectively.

Dynamic industry scenario presenting new investment opportunities in the sector

In the last few years, leading players in the premium finance market have launched new products and services to address the needs of their client base comprehensively and gain a competitive advantage over their peers. For example, in April 2023, ePayPolicy, a digital insurance payment solution, unveiled a new premium finance product, viz., Finance Connect. This new platform allows insurance companies to provide a whole new range of indemnity premium payment options to their clients. The company stated that the digital solution aims to improve the coordination and cooperation between different stakeholders.

On the other hand, certain key players in the sector have established strategic alliances with their competitors to expand their operations globally. For instance, in October 2024, EverBank, N.A., a commercial financing company, announced the acquisition of Primis Bank’s Life Premium Finance division. Primis Bank is a major financial institution in Virginia and the acquisition is expected to help EverBank strengthen its foothold in the coming period.

In summary, the growth of the premium finance industry is attributed to the rising popularity of innovative financing mechanisms from small and medium-scale enterprises. The flexibility offered by these fiscal schemes has made them an ideal solution for companies looking to free up their capital for productive tasks. In addition, the launch of digital products by leading players in the sector is predicted to boost the revenue share of the landscape in the coming period.

Contact our experts for in-depth analysis of the latest advancements and trends in the premium finance industry!

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