Tactica marine insurance now payable in instalments

David Osler - Thursday 26 November 2009

VESSEL operators will now have the option to pay for their insurance cover in instalments, following the launch of a premium finance scheme by a new Kent-based company, which describes its product as the first of its kind.

Insurance Premium Finance (IPFL) has secured a line of credit from an unnamed international bank to underpin premium finance for such covers as hull and machinery and protection and indemnity. The offering also extends to cargo owners and charterers, and others taking out insurance in the marine market.

Under the arrangement, insurers will receive premiums up front, while clients spread the cost of premiums over instalments, in US dollars, euros or sterling.

The facility will be available to assureds paying at least $75,000, or the equivalent in the other currencies, for their annual marine insurance premiums.

IPFL director Neil Barlow said: “At present, domestic insurance business such as household or motor can be the subject of premium finance and premiums can be paid over several instalments.

Similarly, for commercial insurance placed in the same market as the country of origin, premium finance can be arranged.

“Our research showed financing of premiums has until now been unavailable for cross-border transactions. For example, a Greek shipowner arranging cover in the global marine insurance market in US dollars would not be able to obtain finance to spread the cost of the insurances over multiple instalments, other than using the existing limited facilities granted by the insurance companies themselves.”

Most marine insurance premiums are paid on a deferred basis. This allows for the premium due at inception to be spread over, typically, two or four instalments. Insurers often allow 60 days’ credit for each instalment.

In cases where four deferred instalments are allowed, this means that insurers will not receive their full annual premium until the 11th month of the policy period.

Insurers are likely to welcome receipt of their full annual premium within 60 days of inception of the policy. For European insurers, this would also assist in meeting the capital requirements of Solvency II by 2012.

For the assured, the benefits are seen as including improved cash flow for reinvestment in the business, avoiding unexpected premium demands and borrowings from their own bank, clearer budgeting, and the ability to claim tax relief in some jurisdictions on the finance charges.

Payment of claims should also be easier, as there will be no premium outstanding at an early stage.

Brokers will also receive their full annual brokerage within 60 days of inception, sparing them the time and effort needed to collect instalments. There could also be potential for charging an over-rider fee on top of the premium credit charge.

“Because we will be able to pay the full annual premium to insurers within 60 days of inception by inserting IPFL clauses into the policy, there should be a rebate on the premium.

“Hence, the effective IPFL charge to the assured is greatly reduced or may even result in being cost free,” Mr Barlow added.

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