Diversify. Focus. Offer more services and products. Concentrate on your core business value. When it comes to premium financing, the business advice seems conflicting. But there’s a third option: outsource your premium financing.
While outsourcing offers a lot for insurance providers and customers, you need to choose your premium financing provider carefully. Let’s take a closer look at the reasons to outsource in the first place, and how to balance a new product offering with your existing core competencies.
Why consider outsourcing
In turbulent economic times, businesses look to diversification as a hedge against downturns and unforeseen events. While it offers protection from a change in market direction or an economic disruption from new technology, diversification also brings new types of risk. The costs can be high, in economic terms as well as in the time and attention of management and business owners.
Diversifying even into something closely related to your core business can also confuse customers and investors. Starting up a new line will naturally demand attention from the proven line of products and services, and can reduce overall business performance.
Business history is littered with failed attempts at business diversification. Virgin, whose brand can be found on airliners, mobile phones, compact discs, financial services and more, tried to move into the cola market in the mid-90s, and failed to capture market share from Coca-Cola and Pepsi. Quaker Oats spent $1.7 billion to acquire the Snapple line of bottled fruit juices, and sold it for only $300 million three years later.
One solution to this dilemma: outsource the new product offering. In other words, let someone else take care of the headaches of the new product offering, for a fee. It means less revenue from the new item, but on the other hand, this strategy frees up management to concentrate on what made the business successful in the first place.
How to outsource premium financing
Premium financing allows businesses and customers to pay their insurance premiums in easy-to-manage monthly installments. In this kind of plan, a qualified person or business borrows the premiums from a third party. The policy is issued by the insurance carrier and service is provided by the agency.
The benefit is that the client can manage the cost of insurance premiums — whichever type of insurance policy it may be — so that the payments conform with their other fiscal plans and commitments.
For the insurance agent, this type of financing allows them to offer more products and services to a wider market, and to enhance the current value proposition to their existing clients.
How it works
With premium financing, the agent can offer the total range of insurance products and services that are right for the client. The client, whether an individual or a business, can then choose a financing plan that works for them.
The insurance policy is issued by the insurance carrier, as normal. To finance the cost of the plan, the agent can turn the whole thing over to a premium financing specialist.
- Benefits for the customer: The insurance products they need, when they need them, at a cost that fits their fiscal priorities and plans; reduced out of pocket costs, and in some cases, tax savings.
- Benefits to the insurance agent: The ability to offer financing without having to manage it; a new revenue stream.
- Benefits to the insurance carrier: Greater sales to existing customers.
Choose the right provider
When you’re looking for a third-party premium financing provider, make sure they offer:
- total turn-key set-up of all financing plans
- assistance with securing lines of credit, if necessary
- advice on managing and minimizing risk
- all the necessary forms, financing agreements, disclosure statements, monthly billing statements, late notices, cancellation notices and reinstatement notices, and
- premium E&O coverage for premiums.
By outsourcing premium financing, you are in effect creating a new company that specializes in this one activity, giving you a new revenue stream that complements your core competencies.