COST Financial Group, Inc.
In the opinion of many industry observers, particularly brokers and insurance rating companies, the property and casualty insurance marketplace appears to be entering a transitional stage. Although coverages and restrictions are still tough, they say, premiums are leveling off and the hard market of the past few years seems to be softening a bit. But the words "a bit" are the operative ones, according to David Gebhardt, president and founder of the COST Financial Group in St. Louis, Missouri.
"The next round of rate increases will probably not be as stiff as in previous years," he says. "Nevertheless, the hard market is not going to disappear overnight. Premiums will still be much higher than they were in the last soft market, and independent agents' clients will still be looking at premium financing as the best and most economical way to obtain the coverages they need."
This will be bad news for some independent agents and good news for others, Gebhardt believes. It will be bad news for some, he says, because many independent agents are frightened when they hear clients request information about premium financing. "Premium financing is an area with which agents are not familiar. They see nothing but administrative headaches--more paperwork, the hiring of more staff. But the continuation of the hard market, however mitigated, will be good news for other agents who have come to recognize the benefits of owning a premium financing subsidiary."
For more than 15 years, COST Financial has established, managed and operated premium finance companies for clients all across the country. Cost Financial's 150-plus clients include independent agents, wholesale/MGAs, insurance companies and agency groups. "We offer our clients the expertise they need to own their own premium finance company. We run the operation on behalf of the client, doing all of the back-office work and performing all administrative, management and bookkeeping functions on an ongoing basis," Gebhardt explains. "Moreover, the agency is not bothered by calls from borrowers. Our address and telephone numbers are on the stationery of the agency's premium finance company. Borrowers deal with COST's personnel," he says. "That leaves the agency to do what it does best--sell and bring in new business."
More agents today, Gebhardt says, are becoming aware that a owning a premium finance company can be lucrative. "Our clients generally earn between $30,000 and $40,000 for every $1 million they finance through their own company," he says. "It's a ready-made profit center for the agency."
Once the premium finance company has been started up, Gebhardt explains, the agent/owner goes online to complete a finance contract and submit it to the premium finance company (in COST's office), where it is checked for accuracy and then processed. COST sends all monthly invoices or coupon books as requested by the agent or insured. COST also handles all late notices, cancellations, reinstatements and endorsements to existing contracts, Gebhardt says.
"We receive all funds on behalf of the premium finance company, either directly or via lockbox, and deposit them into a bank account set up exclusively for that premium finance company," he says. "We maintain no check-signing or other authority over the account. Moreover, COST reconciles bank accounts and lines of credit, and prepares unaudited monthly and year-end financial statements. All monthly, quarterly and annual reports required by the state or states of licensing are prepared by COST. We also carry both errors and omissions and fidelity coverages for our clients' protection."
Despite these advantages, Gebhardt notes, many independent agents are unaware of the benefits of owning their own premium finance company. "That's one of the reasons we joined the Target Markets Association," he says. "It seemed to us particularly advantageous in terms of communicating to MGAs, carriers and retail agents the ease with which premium finance companies can be set up and the financial benefits of doing so. After all, one of the goals of Target Markets is to provide a forum for communication between its members; and the association is succeeding in meeting that goal. We have found this past year with Target Markets to be extremely helpful. We have taken on new clients as a result of our association with Target Markets, and we look forward to furthering our relationship with the association in the coming years." *