Small business insurance – interest free monthly instalments

Everyone in business loves to get something for free. When we are talking about business insurance though, it is very difficult to get much that you would classify as free. The two main benefits that you can get as far as your insurance is concerned, is a competitive price or the ability to pay the premium in monthly instalments, preferably interest free.
We have covered elsewhere the ability to get a yourself a competitive premium compared to other insurers, by using an independent business insurance broker. But, being able to pay your premium in monthly instalments, without charge, is getting to be more and more of a rarity.

Most insurers, a few years ago, always charged you to pay in monthly instalments. If you think about it, it makes sense really, they are lending you money, over twelve months, so there is a cost to them to do this. Most instalment charges were usually around the 5 or 6% mark. This is the sort of level that most customers were quite happy to pay and this went on for years. Then, around 10 years ago some insurers decided that it would be a good wheeze to start to offer 0% instalments. This was simply a marketing decision to try and get customers to decide between insurer A and insurer B.
At the time, we advised the insurers against doing this, for two simple reasons.

The first one is that, as soon as one company offered interest free, within a couple of months nearly every other major insurer had something similar, whether this was over 6, 10 or 12 months. Therefore, it did not become a marketing differential at all, because everyone was offering the same. Of course, businesses would benefit which is good, but the next point is the main reason why we were not happy.

The second reason was that we knew it would not last. Insurers only offered this because they were in a growth phase, competition was hotting up and they were looking at every small measure to increase their competitive advantage. Knocking 5% of the premium, was equating to knocking nearly 20% of their net profit margin, once claims and administration costs had been taken into account. We knew that at some point in the future, when times got tougher, they would withdraw this. When they did withdraw this, this was going to lead to us having to go back to customers and tell them that, through no fault of their own, they were going to have a 5% increase on their annual premium.

When they decide to withdraw, this was always going to be at the wrong time in the economic cycle. We have now got to this stage. More and more insurers are now realising that 0% is costing them money and they want this back.

But, there is good news. Certain insurers are still offering 0%, but only on a restricted range of products. One of those were we are still able to get monthly instalments, without charge, is for small business insurance. Insurers are still happy to underwrite these types of policy, as they do make money for them. The only real difference is that you need to pay 20% of the premium up front, either by card or with the first instalment being 20%.