Premium funding: helping weather the storm

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With financial hardship becoming a growing concern, Hunter Premium Funding is showing how having a customer-first focus can help Australian SMEs continue to afford the insurance cover they need

PREMIUM FUNDING has always been about creating efficient cash flow for businesses, but one leading funder is finding that the need to support small-to-medium enterprises (SMEs) amid an increasingly tough economy is rapidly intensifying. Since adopting an industry best-practice approach to customers in financial hardship a little over 18 months ago, Hunter Premium Funding chief executive officer Brad Bartlem has indicated that this shift occurred in the nick of time to save a lot of SMEs from financial heartache. “Having an absolute customer focus is a really tangible benefit for brokers and their customers, particularly at the moment, with the economic situation,” says Bartlem.

Hunter Premium Funding is Australia’s specialist provider of premium funding – helping businesses pay their insurance premiums in regular instalments rather than in one large lump sum. Premium funding helps businesses unlock their cash flow and unleash their potential; we’re proud to be part of this, working alongside our partners to deliver this for our customers with integrity, respect, and excellent service, always.

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“Having an absolute customer focus is a really tangible benefit for brokers and their customers, particularly at the moment, with the economic situation”

Brad Bartlem, Hunter Premium Funding

Hunter is in a unique position to see early indicators of economic trouble simply due to the nature of premium funding. Customers who rely on premium funding are normally those savvy about (and reliant on) the cash flow benefits of splitting up insurance premium payments over the course of a year – paying premiums piecemeal leaves more capital on hand each month to deal with the day-to-day running of a business. As a founding member of the Insurance Premium Funding Code of Practice, Hunter has seen first-hand how the financial hardship clauses in the code are helping businesses

stay afloat as the economy has gone downhill in tandem with the end of ultra-low interest rates. An obligation under the code is for premium funders to work “in good faith” with any customer undergoing financial difficulties by coming up with a mutually acceptable repayment plan that takes into consideration the customer’s financial problems. This is a major change from previous practices in the case of non-payments. “In the past, many funders would cancel policies, collect what they could and move on to avoid bad-debt losses – it was very much a financial approach,” says Beau Goodyear, chief financial officer at Hunter. “Whereas now, the customer lens is put over the top of that to try to keep the customer on track even if that means Hunter assumes a higher risk of non-collection. “This approach allows the customers to retain cover, avoid dishonour fees and maintain their ability to obtain insurance in future. Once insurance policies are cancelled through a [history of] non-payment, it makes it very hard for that customer to go back and buy insurance elsewhere,” says Bartlem.

“The cost of living and inflation are still sticking around and making it even more difficult,” adds Goodyear. In all likelihood, these figures would have been worse if the code hardship clauses had not resulted in premium funders like Hunter more actively consulting with customers about ways to keep the plates spinning. In 2023, Hunter restored 60% of its financially distressed customers to current

“Australians are using savings buffers to pay for the costs of business … That is not an infinite source of funds”

Beau Goodyear, Hunter Premium Funding

Business man in sea storm with an umbrella. Premium Funding.

Tougher times ahead

Raising standards one premium funder at a time

Published 06 Nov 2023

Quarter ended

Source: ABS national accounts finance and wealth data

B2B trade payment defaults Year-on-year

Source: CreditorWatch

Difficulties in paying premium funding instalments are essentially an under-the-radar indicator of wider financial stress in the economy. While some pundits are hopeful that Australia is through the worst of the fallout from inflation and higher interest rates, Hunter expects tougher times ahead. The premium funder has seen an 87% increase in the number of customers seeking financial hardship support this year. While this is partly due to its transparency and communication of its financial hardship policy, the firm sees its efforts to find solutions for these customers as holding back the floodgates of much more severe outcomes for the firms involved. Bartlem points to a few key economic data points as evidence of the severity of the underlying problems for SMEs being held at bay as more cracks show in the economic dam. One is household savings. Over the pandemic, Australians famously built up a massive war chest of personal savings as all kinds of expensive activities became impossible. But currency and deposits held by households in June fell by $6.3bn or 0.4%, marking the first time since June 2007 that this indicator has been in the minus column.

“What that tells us is that Australians are using savings buffers to pay for the costs of business,” says Goodyear. With higher interest rates making loans too expensive to service, business owners are dipping into their own funds more and more to keep their enterprises running. “That is not an infinite source of funds. You cannot trade like that for a [long] period of time. Businesses relying particularly on disposable income are now going under, failing,” says Goodyear.

“They put that down to financial stress … but Hunter are very proud to say that we have no official complaints in that period,” says Goodyear. “We've had zero – that shows that our proactive communication and consideration toward the customer is actually effective in working out an outcome prior to them having to be dissatisfied [enough to] take it to a third party,” he says. Bartlem says that as the economic situation gets worse, the role of brokers will become even more important, as they will need to use every tool at their disposal to help clients avoid financial stress and more. “Things are actually escalating to such an uncertain point in terms of how it’s affecting Australia that this is an area where brokers can make or break [a customer]; brokers can make a difference,” he says. Bartlem understands that not all brokers will use Hunter as their main premium funder, but highlights the point – just as long as they use one that is code-compliant. “There’s some comfort and some validation for the broker in the rigorous process that funders have to go through to be code-compliant. We have to demonstrate to [the committee] in detail what we are doing to help our customers. That’s why not everybody is code-compliant yet, because there are a lot of hurdles that you have to jump through.” Hunter was one of the first cabs off the rank when it came to the code and raising standards for premium funders, but the company’s strategic interests lie in helping brokers get as many SMEs as possible through what it sees as an economic storm that is far from over – if that happens to be on another premium funder’s boat, then the main thing is that it not sink. In being a founding member, “we’ve taken a leadership position in our adoption of that true customer focus. So if not us, we’re pleased when we see brokers using other code-compliant funders, because we know that it's going to benefit them and their customers in the long run,” says Bartlem.

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Business activity is also anaemic, with CreditorWatch’s Business Risk Index showing the average value of B2B invoices was down 42% year-on-year in September and well below pre-COVID levels. Australian businesses are ordering less as cost pressures bite, while consumer demand continues to fall, affecting order values and revenue down the supply chain. The index also showed external administrations trending around 25% higher than a year prior and trade payment defaults, a leading indicator of future business failure, had jumped 57% year-on-year, with the credit crunch showing no signs of easing soon. This last indicator is expected to stay high as the snowball effect takes hold and businesses that are being paid late end up becoming late payers themselves.

and up-to-date payment status through mutually agreed-upon payment arrangements, as per its code obligations. Goodyear admits that 40% of customers are still falling through the cracks – but points out that this is now more of a mutual conversation than the previously common radio silence from recalcitrant accounts. “They’ve told us, ‘We’re not going to make it, we are going to close down’ … they’ve told us that they are facing hardship, have deliberated on it a little bit and come back and said, ‘Not going to happen – we're not going to make it’.”

There is one indicator that Hunter sees as a highlight of the value of adopting a true customer focus, and that is realising a more consultative stance in the area of the hardship provisions. The Australian Finance Complaints Authority (AFCA) received a record number of complaints in the 2022/23 financial year as the economy hit the interest rate wall, including a 27% increase in the banking and financial services sector.