How Premium Finance Can Unlock Value for HCV Clients

In the April issue of FA News, Sachin Govender, managing director at Fulcrum Premium Finance, provided insights into how premium finance can unlock value for HCV clients.

Nothing frightens a commercial broker more than a client sending a selfie in front of a fleet of shiny, new trucks and trailers, except perhaps the accompanying caption that begs: “Cover, please!”

The crime and unrest HCV nightmare

The problem that brokers and their fleet and logistics clients face is that the risks in owning and operating trucks in South Africa and neighbouring countries are significant.

Crime statistics from the South African Police Services (SAPS) confirm 1996 truck hijackings in 2023, almost twice as high as in 2022. And that does not include the hundreds of trucks that go up in flames in civil unrest-related incidents each year. This risk landscape has, unsurprisingly, sent insurance premiums sky-high.

Fleet and logistics businesses, already under pressure due to high fuel and wage costs, are therefore turning to their brokers to find more cost-effective ways of insuring their assets, especially HCVs. In this competitive market segment, the ability to advise on cash flow management solutions could separate your brokerage from the also-rans.

The substantial financial commitment required to fund HCV insurance premiums presents significant challenges to your clients, who must balance the need for comprehensive insurance coverage with preserving their operational liquidity. Brokers are increasingly recommending that their clients consider premium finance to achieve this balance.

From broker to strategic finance, risk adviser

Brokers have always played an integral role in the insurance ecosystem. Traditionally, they would give HCV owners access to a diverse group of underwriters to deliver the most appropriate combination of cover and premium. Nowadays, the brokers who stand out from the crowd also offer invaluable advice on risk mitigation, alternative risk transfer and even strategic financing solutions.

The question becomes: how do you, as a leading SA-based brokerage, differentiate your offer when selling insurance to specialist, niche businesses in the transport sector? In my view, a thorough understanding of HCV operators’ unique challenges and objectives can help brokers tailor comprehensive insurance solutions that precisely align with clients’ financial and operational goals.

Insurance premium finance is a powerful tool that can assist HCV owners in meeting their insurance requirements without causing undue financial stress. By incorporating premium finance into their new cover or renewal pitches, brokers can improve both client retention and new business.

Benefits for HCV and fleet owners

Using premium finance, you can help both existing and potential clients to improve their cash flows while demonstrating your unwavering commitment to their success; and fostering lasting, trust-based relationships. Here are five clear benefits that you can share during your next client interaction.

First, you can point out that by financing their insurance premiums, trucking companies can safeguard working capital and direct these scarce resources towards core business activities such as fleet expansion, HCV maintenance and security enhancements.

Second, premium finance enables trucking companies to distribute the cost of their insurance premiums over time, alleviating the burden of upfront lump sum payments and facilitating efficient resource allocation across various operational facets.

Saving precious ‘lines of credit’

The third benefit, best described as credit preservation, is that your clients need not encroach upon existing credit lines to purchase insurance cover: premium finance is an attractive financing option at favourable interest rates.

Accessing premium finance allows for upfront claiming of input VAT, the fourth benefit the solution offers. It enhances financial efficiency and liquidity by bypassing the protracted process of invoicing (and claiming input VAT) over 12 months.

And fifth, unlike with traditional financing arrangements, premium finance does not necessitate additional collateral beyond the insurance policy, minimising administrative burdens and streamlining the financing process for HCV owners.

Financial flexibility, operational soundness

Integrating premium finance into the insurance framework for HCV owners and logistics businesses allows for a balance between financial flexibility and operational imperatives. As the industry evolves, premium finance emerges as an indispensable tool, empowering your clients’ businesses to trade sustainably and optimise growth.