90% of businesses use credit to pay for insurance policies

SMEs are relying on premium finance and finance from insurers ahead of other forms of credit as they borrow more to ensure cover remains affordable, new research from Premium Credit.

Nearly two out of three (64%) fund insurance policies with premium finance or finance from insurers, the study found. With respondents using multiple forms of credit, this is compared with 60% using credit cards, and a third (34%) who rely on personal or business loans.

Premium Credit’s Insurance Index, which monitors insurance buying and how it is financed, shows the average amount borrowed to pay for insurance has risen 10% to £2,140 from £1,945 in the past six months, continuing the uptick in credit use. Two years ago, the average amount borrowed was £1,080, meaning it has almost doubled since then. Nearly six out of ten (59%) say they have increased their use of credit in the past year, with 10% saying they are borrowing significantly more.

Use of credit to pay for one or more insurance policies is widespread – the latest index shows 90% of firms are doing so. Credit is most used for vehicle insurance, with 70% paying this way. Nearly two-thirds (63%) are paying for property insurance with credit, while nearly half (48%) use it to pay for cyber cover.

While commercial insurance premiums have started to ease in recent months, many businesses are still feeling the effects of past increases. Seven out of 10 (70%) report that the cost of their business insurance has increased in the past 12 months – including 10% who say premiums have increased dramatically and around two out of five (40%) say the rising cost of insurance premiums is the main reason for borrowing more. Nearly a quarter (24%) say they are borrowing more because of the impact of increased Employers’ National Insurance.

SMEs are feeling the strain from borrowing, with more than a fifth (21%) saying their company has defaulted on interest or capital repayments for the credit they have taken out to pay for insurance. Companies are also cutting back on insurance – 14% have reduced the level of cover they have in the past two years, and 38% have increased excesses.

Cutting back on insurance is risky – the research found nearly a third (30%) have been unable to claim for damage in the past five years because they either did not have cover or their cover was inadequate. For more than a fifth (21%) of them, the damage they were unable to claim for was worth £3,000 or more.

Nonetheless, SMEs largely remain confident – nearly four out of five (79%) expect business revenue to grow in the year ahead, with just 5% expecting a drop in revenue. A further 12% expect revenue to stay the same.

Owen Thomas, Chief Sales Officer at Premium Credit, said “Credit is essential to ensuring SMEs can pay for insurance, with the overwhelming majority of firms using some form of credit to pay for one or more policies, and the average amount borrowed increasing.

“Premium finance and finance from insurers are playing an increasingly important role in the mix of credit sources SMEs use, ahead of credit cards and business or personal loans.

“Rather than paying a large lump sum upfront and tying up working capital, businesses are choosing to spread the cost of their cover into manageable monthly payments, making it far easier to plan ahead and manage their cash flow.”