Planning for change. Premium funding in a time of interest rate rises

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An increase in inflation is driving interest rate rises for the first time since 2010. What does that mean for Hunter Premium Funding and our customers?

After more than a decade of contraction, the interest rate cycle has turned. We look at what the rate rises mean for both customers and brokers, and how they can best navigate this new economic cycle.

It’s not unusual to hear the term ‘unprecedented’ when we talk about the effect of macro-economic forces on fiscal policy. The COVID-19 pandemic certainly had a major impact on the global economy and Australia’s financial system. But we’ve seen major economic disruptions before – remember the GFC?

With the underlying interest rate going up, and further rate rises to come, what we’re seeing now is a correction after years of very low interest rates.

Beau Goodyear, Senior Finance and Operations Manager at Hunter Premium Funding, believes it should come as no surprise that the underlying interest rate has increased, and will increase further, on the back of inflationary pressure now that the Australian economy has opened back up.

“COVID still exists, supply chain issues still exist and we have an unstable geo-political environment that is making those supply chain issues worse,” Goodyear says. “However, demand is increasing again because people are back out and about. So, inflation is soaring as a result.”

The economy is just trying to normalise, Goodyear explains. “It’s a readjustment that just has to happen. In the same way people got used to working from home and not using public transport, so too people got used to having low interest rates on their home loans. We’re definitely at the other end now.”

Planning for the future

Goodyear says Hunter Premium Funding is looking to the future to determine what form premium funding can take for both customer and broker.

“With premium funding, the customer can free up cash flow by spreading their insurance costs over the term of the policy,” he says. “What we noticed during COVID was that, for small to medium enterprises (SMEs), premium funding started to become a mainstream line of credit. It points to the maturity of the product – businesses want to diversify their credit arrangements so they’re not completely exposed to one level of lending.”

He says brokers can benefit from certain advantages when they partner with Hunter Premium Funding.

The organisation offers sustainability and consistency, thanks to its 45 years of premium funding experience. Hunter is also backed by Allianz, which gives it a level of security that is a distinct competitive advantage.

Additionally, there is Hunter Premium Funding’s ownership of the debt collection process.

“We take the full administrative burden of debt collection out of the hands of our broker partners so they can focus on delivering their key set of skills for their clients,” Goodyear says.

Readying your business for this cycle

Marc Gross, Hunter Premium Funding National Credit and Risk Manager, says customers aren’t used to seeing interest rates going up.

“Our biggest challenge is getting people’s heads around the ongoing interest rate rises and educating staff and customers about why it’s happening – that it’s the result of the wider macro-economic environment,” he says.

Both he and Goodyear agree we’re at the start of an upward movement of interest rates and how long it goes for will be dictated by how successfully global governments can manage global inflation.

“It’s important that businesses ready themselves for the long haul. We need to get used to the fact that more rate rises are coming,” says Gross.“Where it stops we can’t be certain. But I think the main message is just be prepared as much as possible for this cycle.”

With more interest rate increases on the horizon, premium funding provides customers with confidence through a fixed rate lending program. It can help alleviate cash flow pressures for businesses today, while preparing customers for what tomorrow may bring.

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