Discovering a Niche


Illinois bank launches insurance premium financing sideline

By Katie Kuehner-Hebert

In an era of exceptional competition with tight interest margins, many community banks are attempting to tap new lines of business.

Triumph Community Bank in Moline, Ill., has established a specialty finance division to lend to insurance agents nationwide.

Launched last fall, the bank’s Triumph Premium Finance division provides short-term loans to its business clients that allow the clients to spread their premium insurance payments for property and casualty insurance over time. The division is one of five specialty finance programs the $1.6 billion-asset community bank operates.

According to Aaron P. Graft, chief executive of Triumph Bancorp Inc., the bank’s holding company, many small and mid-size businesses cannot afford to pay the annual premium of their total insurance program. Those businesses often carry several insurance policies, from general liability to property and workers compensation policies. Many also carry specialty policies such as directors’ and officers’ insurance, errors and omissions insurance, and cyberinsurance.

“The insurance carrier expects full payment for the year upfront [for the policy], but if a company cannot afford to pay the entire payment, they can finance it,” Graft says. The loans Triumph Community Bank provide allow those businesses to bridge the gap.

The bank generally requires a 20 percent down payment on a premium loan that typically has a term of less than one year, before the company’s next insurance renewal. The loan amount varies; for example, a trucking company financing the insurance on its 10-vehicle fleet might have a total premium payment of $80,000.

“Banks can’t be just moonlighting in specialty finance.”
—Aaron P. Graft, Triumph Community Bank

“We like the business of financing insurance premiums, because it is generally resistant to cyclical pressure and the default risk can really be mitigated,” Graft says. “We’re not dependent on what the market thinks the value of a brick-and-mortar location is to secure repayment on the loan. We’re depending on the policy as collateral, which in some cases is required by the insured’s lender on their commercial property.”

Since October, Triumph Community Bank has processed more than $2 million in insurance premium loans. The division has several competitors, including the largest premium finance companies, in a highly competitive market. But Graft says that the key to success—like most things in banking—depends upon “superior execution and customer service.” That requires a commitment of time and money, he says.

“Getting the right people, putting the right procedures and policies in place costs money,” he says. “Banks can’t be just moonlighting in specialty finance. They have to actually make a commitment to have a big enough portion of their loan portfolio in the lending area, and they need to commit support, people, process and systems in place to handle it properly.”

Katie Kuehner-Hebert is a freelance financial writer in California.