How to speed up your receivables

Joe Micallef, CEO of First Insurance Funding of Canada, said Canadian brokers often tell him their receivables times are as long as 45, 60 or even 90 days. He compares this to his experience selling premium financing in Australia for more than a decade. 

 

“In Australia, our business looked after 1,300 insurance brokers,” he said. “One of the last surveys we did before I left Australia three years ago was around their receivables (among those that used finance premiums for all of their clients). Their average receivables days were less than 35 days. 

 

“When I tell people that in Canada, they tell me, ‘That’s a dream. I’d love receivables to be 30 days or less.’” (continued)

 

Premium financing allows brokers’ clients – particularly large commercial clients – to pay their premiums in 12 equal monthly instalments, subject to the interest for lending. The option means clients do not have to pay their entire premium within 30 days of the time of sale.

 

Micallef has 17 years of experience in global  business banking and developing solutions for insurance brokers, the past three of which he’s spent in Canada. He came to Canada as an employee of Australian-based Macquarie Premium Funding.

 

Macquarie in Canada was re-branded as First Insurance Funding of Canada after U.S.-based Wintrust Financial Corporation acquired the Canadian business of MacQuarie Premium Funding in 2012.

 

Canadian insurance brokers are much more reticent to offer premium financing up-front to their clients than their counterparts in Australia, Micallef told Insurance Business. “Generally, most [Canadian] brokers will only finance roughly 10% of their gross written premium in any given year, as compared to Australia, where I’ve seen it range from 30% to 40%.”

 

Why are Canadian brokers not being more forthright about offering premium financing? 

 

Micallef cited three possible reasons: 

 

• Canadian brokers may be fearful of clients misinterpreting an up-front offer of premium financing as a suggestion that the clients can’t pay their premiums. 

 

• Many brokers may simply see premium financing as an afterthought. They may bind the coverage, invoice the client and then, only after the client hasn’t paid in 30 days, offer the premium financing option.

 

• Concern that their premiums may be declined.

 

Brokers look for an easy way to obtain premium financing with little risk of the application being declined. As a solution, premium financing companies  have developed programs to automatically approve brokers' clients and produce contracts for them.

 

By offering premium financing up front in the sales process, brokers can cut down on the number of occasions when clients use up the first 30 days without paying, said Micallef. “If you offer premium financing up front, your client doesn’t have an excuse not to pay their premium. 

 

“We’ve seen a correlation [in Australia] between the more finance you produce to your client, the lower the receivables.”