Funding Your Niche

In the past, insurance brokers were required to be jacks-of-all trades. That meant a lot of juggling—listening, analyzing, and responding to clients’ needs from a broad range of industries.

Over the last few years, however, there has been a gradual shift. Where brokers were once succeeding with a generalist approach to insurance, many are realizing that targeting niche industries may better position them for future growth. As brokers become more specialized, there is also a greater demand for premium-financing partners that understand the needs and limitations of these markets.

Let’s take a closer look at how to target your niche and how premium financing can help you capitalize on this niche, with some specific examples to highlight this point.

Target Your Niche

A niche industry makes up a specific portion of the market. It meets the needs for a product or service that is not being met by conventional providers, and targets a small market segment that is defined by a pool of prospective customers.  So why bother, given the challenges that may arise when catering to such a narrow group? The biggest advantage is that there is potential to be alone in the space, which opens up the possibility to own it.

Why is the industry heading in this direction? Many brokers are finding it harder to succeed in a broad, highly-competitive setting. That being said, those same brokers who are still generalists are having a harder time attracting business from smaller, niche industries. Specialty players have the capability to outsell in individual industries using their expertise and by introducing customized solutions that meet their clients’ unique financial situations.

Additionally, if you become an expert in one area, you are able to attract and retain a strong client base in that market and become a partner to that industry. You also get the promotional benefits of referrals in that industry and its trade associations.

So how do you decide on a niche? Many brokers start by looking at their current book of business and grouping them by similar categories, or sorting by multiple interactions in one geographic area with similar risk factors. Maybe you have a number of small-business clients in a given town, or a group of seasonal, tourist-related industries in another area. Many brokers find their niche by looking back at the business they’ve done before.

A broker can also gain a lot by collaborating with other support systems for that area of business. Does your niche have a trade association? Does this area allow you to partner with other organizations in the industry? A niche doesn’t have to be specific to one industry, but it should include similar characteristics.

Premium Funding

Another major consideration is the value a premium finance company can add to your niche market approach. Most niche industries have unique working capital characteristics and policy conditions that may impact their ability to fund the premiums a specialist insurance broker has been able to offer. Brokers can further demonstrate their understanding of the niche industry by working with a premium funder to develop a payment solution that overcomes policy limitations and meets the client’s unique cash flow situation.

Consequently, a premium funder that focuses on developing specialized funding solutions can be a valuable partner in the broker’s pursuit to become a niche market expert. Some of the niche industries that have emerged recently as candidates for specialized funding solutions include, transportation, aviation, and franchises. Working closely with niche market brokers, premium funders have gained a better understanding of these industries and their capacity to meet periodic loan repayments. In addition, the premium funder’s ability to access returned premium in the event of default means the funder is more likely to lend to higher risk companies.

Accordingly, brokers can market to these industries with greater confidence knowing that they have a premium funding solution that further demonstrates their understanding of the industry and enables them to collect the premiums more easily.

Here’s a look at how a premium finance company can help brokers add further value to these select niche industries:

Transportation. One of the largest industries in Canada has attracted a lot of attention from carriers and brokers alike.  But, the administration requirements and tenuous survival rates of transportation business owners can deter the broker who is not prepared to adopt a niche focus. Insurance demands are high for transportation business owners, and specialist insurance brokers can add significant value. However, equally important are the finance demands. Seasonal cash flows, high maintenance costs, and unexpected breakdowns means working capital management is highly important for transportation companies.

Such working capital issues can also discourage a premium finance company due to risk of loan write offs. However, some funders have partnered with carriers to develop solutions that can assist this cash-strapped industry, and ensure much needed insurance coverage and working capital assistance. Funders have also streamlined the endorsement process to make the addition and deletion of vehicles a seamless process with pre-approved funding set up for any additional premiums. For the specialist broker, this means they can also offer an easy payment solution for these valuable clients.

Aviation. The aviation industry has unique insurance issues because hull policies are potentially fully earned and could be catastrophic due to physical damage to an expensive aircraft, passenger liability, or terrorism. Without detailed industry knowledge, this area could prove problematic for generalist brokers―alternatively, for the specialist broker, it can be highly lucrative.

Premium funding for aviation policies is specialized due to the relatively higher risk of loss, but the cash flow fluctuations of this industry means the demand for funding in this industry is quite high. Like brokers, funders who take the time to understand the industry and provide a specialized funding solution can offset this risk through quality returns, and thereby provide a valuable addition to the services offered by the broker.

Franchises. Franchise businesses consist of multiple locations of the same business that generally work within the guidelines and restrictions of a parent company. Franchise owners usually leverage the buying power of the parent company to obtain better pricing from suppliers, including better insurance coverage―but funding support is at times limited to the strength of the individual franchisor. Many brokers are targeting franchises to secure a large volume of similar policies. By understanding the group policy characteristics and the volume potential, premium funders can partner with the broker to provide a funding program that offers a pre-approved funding solution at competitive rates, and terms that ensure every franchisor can leverage the franchise’s greater buying power. It is also important to ensure that the premium funding company can offer an automated technology solution on quoting to keep the administrative duties to a minimum for the broker. 

Each of these niche markets centres around industries with highly-individualized needs, risks, and requirements. Like specialist insurance brokers, clever finance companies who invest time in understanding niche markets can develop pre-approved funding terms that can generate excellent returns, which far outweigh the higher risk potential. Collectively, the insurance broker and the premium funding company can collaborate to offer a far broader solution for niche markets. This provides an exciting way to stay ahead of the competition in a world where niche means big business.

Joe Micaleff is CEO of FIRST Insurance Funding of Canada and has over 15 years experience developing financial solutions for insurance brokers.

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Copyright 2012 Rogers Publishing Ltd. This article first appeared in the September 2012 edition of Canadian Insurance Top Broker magazine.

This story was originally published by Canadian Insurance Top Broker.