Premium funding is the lending of funds to a person or company to cover the cost of an insurance premium. By signing a funding agreement, the insured is agreeing to have the premium funding company advance the annual premium to the insurance company on their behalf. The insured is then given a payment plan from the funding company that includes premium and interest payments. If the insured fails to pay an instalment when due, the premium funding company has the right to request cancellation of the policy from the insurance company for security.
No matter how large or small your company may be, with FlexiFundIt you will find it easy to use our software within your business. This software is well suited to the Insurance industry and can help you manage payments from your clients.
Did you know… FlexiFundIt can help generate income
With FlexiFundIt, you are able to generate income by borrowing money at a certain interest rate from one source (i.e. a bank, private investors, etc.) and lending that money at a higher rate to policyholders. Profits from premium funding also include late fees and other incidental charges. The costs of forming and running a premium funding company include interest expense (i.e. cost to borrow the money), day-to-day administration and overhead, licensing and accounting expenses. With proper financial modelling and the commitment to promote the funding transaction, the income generated by a portfolio of premium funding loans can yield a considerable return on investment.
Past experiences show that at a minimum, a captive commercial premium finance operation with average size premiums of $3,000 could make anywhere from $20,000-$30,000 in income per year for every million dollars of funding. This number will vary depending on a variety of factors including the difference between the rate charged for funds and the rate paid for funds (i.e. the “spread”), the late fee income and how one chooses to administer the book of business.
Why captive financing?
The most obvious reason for captive financing is because you, the agent, paid 100% of the cost to bring a deal in the door but failed to retain 100% of the potential income from that deal. In other words, you’ve left money on the table. Secondly, the recent growth in premiums comes with the downside realisation that insureds are strapped for cash to pay for their insurance and if they can’t pay for it, they may choose not to purchase it or purchase less of it—not a good outcome for the insured or the agent. Empowered with the ability to make decisions about your own funding company (as opposed to having terms dictated to you), your agency can solve a very important developing problem in a hard market.
- All-in-one system
- Mobile access
- Multiple branches and users
- Electronic interface with third parties
- Loan management for the life of the contract
- Reporting system
- Flexible payment methods for clients
- Technical support
How do you get started?
The total amount of premiums that could be funded needs to be at a certain level to meet the start-up and minimum ongoing costs of owning your own premium funding company. The minimum also depends on the total number of loans that would be funded in each year and the interest rates that will be charged for each premium range are very important. These factors can help make the financial forecast much clearer in terms of understanding the return one can expect.
Once a decision has been made to proceed, the first task to consider should be the acquisition of capital. Agents might be able to work with their local bank or lending institution or even have a servicing/software vendor introduce them to lending relationships that specialise in this niche market.
Get in touch today
With our simple design, FlexiFundIt will help you improve your service and maximise revenue sooner rather than later. If you need more information about what our software can do for your business, please get in touch with our team to get the answers you need!