The sector went up from $46.08 billion in 2023 to $51.37 billion in 2024, the data showed, driven by growth in high net worth individuals, expansion of luxury goods and services, increasing insurance premiums, growth in real estate investments, and increased focus on asset protection.
PropertyCasulty360.com recently spoke to Chase Petrey, president at Applied Pay, about premium financing and its role in economic development, new businesses, and job creation.
In addition to his role at Applied Pay, Chase also serves as President of the Salt Lake City Chapter at Silicon Slopes, a nonprofit organization that empowers Utah’s tech community to learn, connect, and serve in order to make entrepreneurship open and accessible to all.
PropertyCasualty360.com: What is premium financing and does it play a role in economic development?
Petrey: Premium finance is a component of the agency bill collection process that gives insured customers the option to pay for insurance over a period of time. Customers can avoid paying a large lump sum upfront for their premium and manage their cash flow better, which can be really helpful for smaller businesses that may not have large sums of money readily available to spend on an insurance premium. Premium finance also acts as an additional payment method that allows agencies to close more business, so it’s a useful tool for agencies and their customers.
Anticipated rising costs and complexities of insurance products, increased customer demand for affordability and flexibility will drive demand for premium finance in the coming years. These trends, among other agency growth drivers, are why we have invested in premium finance within Applied Pay, which gives insureds greater access to premium financing, and in turn, will allow more business to flourish and contribute to the economy.
PropertyCasualty360.com: What industries and businesses use premium financing most? Why?
Petrey: While borrowers can finance both commercial lines and personal lines premiums, it is more common for premium financing to be used for large commercial lines policies.
PropertyCasualty360.com: What role does premium financing play, if any, in the launch of new businesses?
Petrey: Think of launching a new business like buying a car. You can buy the car, but you can’t operate it without auto insurance. For many businesses, you can’t operate your business without insurance either. The problem is insurance premiums for your new business are a lot higher than for your car.
Starting a business is expensive and cash may be tight, so coming up with a large sum of money can be tricky when you’re first starting out. For some new business owners, especially those with higher risks, having to pay an insurance premium upfront in full can be a deal breaker. This is where premium finance comes into play. It gives the business owner payment options that work with their budget and allows them to free up cash for other start-up costs.
PropertyCasualty360.com: What are key barriers to opening a small business? Where does insurance rank in the list of importance?
Petrey: Anyone who has started a business knows there’s a myriad of barriers between developing a concept for your business and actually launching it. Cash flow is one of the biggest because there’s not much you can do without funds. This is expected though. We know we need to have some sort of cash flow or line of credit to launch a business.
Insurance, however, often surprises people, especially if they are new to owning a business. Everyone knows they need insurance, but commercial policies can be much bigger than the insured projected. So even if they budgeted for insurance, the actual premium may be unaffordable because it is higher than they expected. This is where premium finance comes in. It allows the business to bypass that large, lump sum payment and keep moving forward towards their launch.
PropertyCasualty360.com: How often are business launches stopped by insurance costs and what role do high premiums play as startup deterrents?
Petrey: It’s difficult to pinpoint how many new businesses don’t get off the ground specifically because of insurance costs, but we do know that new business owners must often face difficult choices when it comes to affording their insurance premiums. They may need to cut costs in other areas to pull together the premium payment. Or, they may opt to cut coverage.
A 2023 Hiscox report found that 75% of small businesses in the US don’t have enough insurance coverage. Of course, there are many factors that contribute to this — lack of understanding their risk, for example. But we also know that when faced with an unexpectedly high insurance premium, many small business owners will lower their coverage to make the policy more affordable. This leaves them open to risks down the road. Having the ability to finance premiums allows business owners to get the coverage they need, in a way that’s more affordable, to prevent costly risks in the future.
