The insurance field is vast, encompassing distinct areas that ultimately work in tandem such as claims, underwriting, and insurance brokers. There are, however, a few areas that represent a subset of the industry. Insurance premium financing provides one such example.
“Premium finance is a subset of the insurance industry, but also a completely different beast,” Chris Gebhardt, chief technology officer with COST Financial Group, Inc. stated. “While the whole industry moves at a somewhat glacial pace in regard to technology and procedures and is slow to adapt, premium financing has been stuck in the same old mentality for decades.”
When insureds are unable to pay an insurance policy upfront or would rather pay in instalments, premium finance companies provide short-term loans to cover the policy premium, especially important today for small businesses with cash flow concerns post-COVID 19.
Traditionally, when retail brokers and wholesale agents arrange these loans for an insured through a traditional premium finance company, there is only a minimal commission offered by the premium finance provider for bringing in business, Gebhardt explained.
This leaves the bulk of the profit in the hands of a few of the country’s large premium finance companies. These institutionalized big players in premium financing drive the homogenization of the industry.
Read more: Premium financing critical for agencies to offer as businesses recover
COST Financial Group realized this profit inequality years ago. Identifying that there was a market for agencies, insurance companies, and general agents “to find a better way of insurance premium financing,” COST undertook the mission to take that money that is made from premium financing and put it back in the hands of their clients – retail brokers, wholesale agencies, and other insurance related organizations.
“We flipped this relationship around. Our model is reversing that relationship and enabling our clients to own their own premium finance company, thereby earning all the profit, but without the additional work and overhead of a traditional start-up,” Gebhardt illustrated.
“Our turnkey solution provides all of the operations and backroom work of traditional premium finance companies, but on behalf of our clients. We do all the work, and they earn all the profit from premium financing. It is not just a facility for insureds, it is a profit center for their company,” Gebhardt concluded.
Acknowledging that there remains a role to play for the large finance companies which drive the industry, having a separate profit center for clients like retail brokers provides a real benefit, often two to four times greater than traditional commission programs.
“Typically, a retail broker’s bottom line is driven solely by the amount of insurance they sell. By starting their own premium finance company and outsourcing the operations of it to us, they can dramatically increase their profits while remaining focused on the insurance side of their business, because COST is handling the operation of their finance company,” Gebhardt explained.
How it is done
Gebhardt described that, for COST Financial Group, it is all about providing first-rate customer service equal to what their clients would expect to provide for the insureds. Heading into their 33rd year of operation, COST has the experience and knowledge of how to run a premium financing company in addition to the much-needed flexibility to adapt to its clients’ needs.
This can range from integrating with existing technology platforms to offering unparalleled service and expertise in the space of premium financing.
“Oftentimes insureds are dealing more with the finance companies rather than their insurance provider or agent unless they are making a specific claim,” Gebhardt stated.
Read next: Why the best premium financing solutions evolve with the needs of the agencies
“So, it is incumbent on us to provide a first-rate customer experience not only to our clients, but their insureds as we handle the day-to-day operations of our client finance companies. We provide complete flexibility and control over the entire process for our clients and their premium finance companies.”
Technology and insurtechs
COST is cognizant of the huge role that technology is starting to play in the insurance industry and has put particular focus on maintaining a platform that is seamless for retail brokers or agents to integrate with at their desired level. This also stands true for some of COST’s clients, which are insurtechs.
“The large premium finance companies have software platforms but a lot more rigidity in terms of what they can do to integrate with a particular agent. They are basing it on a given agency’s management platform and they will be asking the agency to run software that will integrate with them,” Gebhardt elaborated.
“Our approach is different. If a client is running a management platform or other platform that they control, they can integrate with us to whatever level they desire. This streamlines the entire premium finance process even further,” Gebhardt continued.
With insurtech clients, COST provides what these technology start-ups may not have – experience and expertise.
“A lot of insurtech start-ups are not being driven by insurance people. They are being driven by technology people. These clients do not often have the knowledge or know the ins and outs of the premium finance business from both a working level and compliance and legal perspective,” Gebhardt pointed out.
“That’s where we come in. We can tightly integrate with these insurtechs and provide them with 30 plus years of experience in areas such as state licensing, ongoing compliance, and industry best practices.”
What does the future look like?
As the insurance industry is slow to catch up with the lightning speed of technology, Gebhardt predicted that in the next three to five years there will be a tug of war with the insurance industry slow to catch up and insurtechs providing much-needed innovation.
“We feel a kinship with insurtechs – COST has disrupted the premium finance industry just as insurtechs are now disrupting the insurance space. However, insurtechs will often barrel into areas like premium financing somewhat blind to all it encompasses. This is a very regulated industry,” Gebhardt stated.
“Premium finance companies must meet compliance standards and state insurance rules, statutes, and regulations. Things must be done in a legal and correct way when conducting business, and that’s another benefit to having an experienced partner like COST – the knowledge to ensure that the premium finance companies we manage are being run the right way.”
With COST Financial paving the way and providing the business model, success will likely be seamless and backed with experience for retail brokers, wholesalers, and insurtechs entering the premium finance space and utilizing COST’s services.
Chris Gebhardt, chief technology officer with COST Financial Group, has over 20 years in the premium finance industry and blends his IT knowledge with his knowledge and experience in premium financing to maximize both profitability and efficiency for COST’s clients.