The financial services industry has been described as one thousand separate businesses under a single banner. While many firms still consider themselves to be merely brokerages, banks, or insurance companies, other leading firms have been able to read between the lines and figure out how to use their financial smarts to capture market share in specialty areas.
For instance, consider the business of premium financing for excess and surplus (E&S) insurance lines. "In the early 1950's, insurance companies typically received all of their premiums up front," said Tim Phillips, senior vice president of the AFCO subsidiary of Mellon Financial Corporation, Pittsburgh, Pa.
That's when AFCO stepped in. "AFCO found a mechanism to finance, just as you'd finance any other business, an insurance premium," said Phillips. Over time, the insurance premium financing business has grown from a niche business to a very large niche business with multiple competitors, he added.
But premium financing isn't just another loan. "The difference is, it's a very short time window - generally, premium finance loans are on the books for less than a year, because most insurance policies are written for a one-year timeframe," said Phillips. Also, the loan is secured by the return premium provided by the insurer, which means that the borrower can obtain a preferential interest rate versus an unsecured loan.
To originate these loans, AFCO sells software to independent insurance agents across the country. "When it's time for them to quote a rate and a payment plan for an insured company, we have some PC-based software that helps them to do that," said Phillips. "If the insurance carrier has limited payment plan alternatives, and the agency prefers not to have it on their books, what they might do is look to finance that business -- with AFCO, hopefully."
But that's not the only insurance-related technology play the company has going for it. In Phillips' view, insurance companies have focused more attention on ratings systems and claims systems than they have on administrative tasks. "Many insurance companies don't consider billing to be a core competency," said Phillips. "They just view it as an administrative need to be able to collect their funds."
That's an opportunity for AFCO's Electronic Billing Insurance System, or EBIS.
When an independent agent sells a policy, the collections side can either be handled by the insurance company underwriting the policy, or by the independent agent, which remits insurance premiums back to the carrier, net of commissions.
In either scenario, EBIS can help. The software, currently provided through an outsourced Application Service Provider model, manages customizable invoices and dunning notices (which have to comply with state-by-state regulations), receivables, and customer service support. "The insurance company can view all of their information, and they can also enable the agents to view only the accounts and policies that an agent has established with that carrier," said Phillips.
Not bad for a specialty business.
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