We love South Africans’ entrepreneurial spirit. Each day we hear stories via sources like Good Things Guy about someone spotting a gap and taking it – someone starting small and thinking big.
Recently one of our mates, Devan Kerr, extended his role in the world of entrepreneurship and launched a corporate lending company called Premium Finance Partners. Although the business is not big from a headcount point of view, it has popped up on many people’s radars as it has managed to raise a significant amount of capital from two of the biggest players in the local capital markets.
CN&CO’s Colin Ford caught up with Devan at the Premium Finance Partners’ offices in Rosebank to find out the story behind the business. Here’s what they spoke about:
CF: In a nutshell, what is premium finance?
DK: Due to the size, structure and complexity of certain insurance policies, many corporate entities are required by their insurers to pay their insurance premium annually upfront for the year. Given the quantum of this payment requirement, these payments can put a significant amount of strain on a business’s cash flow, or cause it to allocate important capital to non-revenue generating activities.
Premium financiers provide the upfront capital required to pay for these companies’ premiums on their behalf. The insured organisations then repay the finance houses in monthly instalments, with interest, over the term of insurance policy.
CF: Starting a business is hard. What are some of the challenges you have faced so far?
DK: Entering into an established market with historically dominant players was always going to be difficult. Some of the players have great brands, are well respected and have been around for ages. With this being said, the legacy nature of these companies has left them with significant monthly overheads, more rigid pricing structures, inefficient processes and a tendency to be a little more impersonal in their approach to clients.
While it may seem like we’re punching above our weight, we entered this market knowing that we have significant capital and capacity behind us. Furthermore, our last-mover advantage means we have a very low overhead structure, slick systems and processes and a very flexible approach to deal structuring and pricing – a combination of attributes that the more established and overweight providers cannot compete with.
CF: How much capital have you managed to raise for the business?
DK: I cannot disclose the specifics of the facilities provided, but our initial capital raise in August last year exceeded R200m and has given us a great foundation to go and aggressively take advantage of this immense opportunity.
While this facility gives us a great war chest to go and compete in the market, what makes us confident is that our two primary funders have provided us with commitments on our future capital raises, which I have no doubt ensures strong sustainability of our offering to the market.
CF: What does your team look like?
DK: Our board consists of three people – me, Alfons van der Vyver and Peter Jennet. I am the only executive director, while Alfons and Peter serve in a non-executive capacity, bringing significant experience and insurance knowledge to the business.
In terms of our day to day operations, we have a core team of three people – me, Patricia Motsoenyane and Celeste Nel. My background in financial services allows me to focus my energy on managing the strategy, growth and credit risk of the business. Our head of operations, Patricia, previously handled premium finance administration and therefore comes with a wealth of experience and context in our field. On a local sales front we have Celeste, who has spent the better part of her career in the credit insurance space and therefore has the ideal combination of insurance and credit knowledge.
We’re also in a unique position where we are able to leverage off the back-office capabilities of our two primary funding partners, giving us access to some of the best HR, legal, finance, compliance and IT functions, without having to incur these costs directly.
CF: What is Premium Finance Partners’ edge?
DK: When building our business we focused our value proposition around three core elements, namely efficiency, approach and cost.
Efficiency – As a result of our vast knowledge within the market, we have invested heavily into our systems and processes (quoting, credit approval, payment, recovery). We felt strongly that if we could remove many of the current inefficiencies within the premium finance process then not only would it make working with us a better choice for brokers seeking premium finance, but ultimately it would make them look more professional to their clients. This win-win scenario is what our business is all about.
Approach – As our name suggests, we’ve adopted a very partner-based approach. We want to work with our clients and complement their businesses and offering, rather than just being a random referral. We are very specific about the type of business we want to attract, which makes us incredibly selective when it comes to taking on new work.
Cost – From a financial perspective, we have worked extremely hard with our funders in giving them the requisite comfort around our business, thereby ensuring the terms of our capital facilities provided us with a somewhat unfair playing field when we started pricing transactions in the market. While we believe strongly that price shouldn’t be everything, with premium finance being a financial product we are constantly reminded that a good interest rate is the primary factor that clients are looking for. Our streamlined business structure, coupled with the terms of our facilities, means this is where we have really been able to come to the party.
Since starting out in the second half of 2019, we have signed over 90% of the business we have pitched for – so we are hoping that focusing on the above means we are getting something right.
CF: Who falls into your target market?
DK: Our end customers consist of large corporate entities in the mining, manufacturing, logistics and agricultural sectors. We are respectful of our partners’ long standing relationships with these clients, so we ensure that we only work through brokers who deal with organisations in these industries. As such, we align our product with large and mid-size corporate brokers, as well as large independents.
CF: How has it gone so far? What do the numbers look like?
DK: It’s been going great! The market has been very receptive to our offering and we are extremely grateful for this support to date. As at the end of January we were over 300% ahead of budget, which has been way beyond our expectations. With this being said, we are handling the workload well within the structure we have built, which we don’t intend to change anytime soon.
We’re scalable enough to handle anything the market throws at us and are really enjoying the journey.