Insurance Finder

Luther Grafe, Executive vice president and chief operating officer of BankDirect Capital Finance, located in Lake Forest Ill, says that one of the clearest effects of the current economic downturn has been a pronounced reduction in some of the formally favorable terms that were being offered to insureds during the previous year’s softening insurance market.

Last year some premium finance companies were offering up to 12 months of equal installments although a typical example would be terms of 20-to-25 percent down, and about nine months of equal payments.

Mr. Grafe described the offer of 12 months of equal payments as being a thing of the past. He describes a diminished appetite among premium finance companies for enhanced terms, but notes that premium finance agents understand that, and they are allowing insureds the knowledge that they will not be able to expect such desirable repayment deals in a credit market as tight as the present one.
Eric Sepci, vice president and chief operating officer of the New York based Premium Payment Plan says that it is still important to offer aggressive and reasonable terms, but terms that might have been considered as being reasonable last year may appear too aggressive this year as a result of the rate of failure that is evident in certain lines of business. He explains that some of their company's competitors are still acting aggressively in these markets, but that this is resulting in some hypercompetitive situations, situations that require them to remain disciplined.

While affecting consumer buying ability, in a similar way the economy is affecting premium finance companies.

According to COO Sepci some premium financiers will find it difficult in this environment as a result of the manner in which the economy is affecting their ability to borrow or securitize their portfolios. The problems of the economy however, are creating an unlevel playing field between premium finance companies. This, he says, will probably end up with a situation of scaled-back operations, company sales or mergers. He says that such results are not uncommon to what many of the banks today are experiencing.
The prospect of consolidation among premium finance companies creates opportunity according to BankDirect’s Mr. Grafe. He says that historically such consolidations have created opportunities to expand relationships with agents, and even opportunities to create new partnerships.

Premium finance companies will need to pay attention as to what is going on with the insurance carriers in addition to managing their own affairs, Mr. Sepci warned. As insurers feel the repercussions of the deteriorating economy he explained, the finance companies will need to be cautious and disciplined when reviewing carrier performance and ratings so as to make sure that their collateral is being held by financially sound insurance concerns.

In the end to succeed in premium financing it is necessary to maintain and strengthen relationships, according to Mr. Ludwig of Royal Premium. He says that partnerships with agents is the foundation of the premium financing business. Mr. Grafe said BankDirect Capital’s approach in this market is to focus on what the company can do for its clients in order to build long-term relationships.