Risk Mitigation

Evolution’s software has passed both procedural and accounting audits for various premium finance companies and states.

Accenture, the largest computer consulting company in the world, was hired by a customer to stress test and analyze it. We exceeded expectations.

Unearned Premium Returned by Law

In the event of a loan default, the unearned premium must be returned to the company that financed the premium by law. In all, there are only two states that do not have laws that govern the return of unearned insurance premium. The following are examples of state statutes requiring return of unearned premium.

The first premium finance company, Credit Club of Pennsylvania, was established in 1933. However, the premium finance industry in the United States gained significant momentum in the late 1950s with the founding of AFCO, initially known as the "American Four" company. This company was originally co-owned by four distinct insurance firms.

Collection is simple and effective because carriers have followed the laws as expected for decades. When using Evolution’s software, you will generate a Notice of Cancellation to the carrier and carrier returns unearned premium to premium finance company.

Can you name any other lending activity in which your collateral is returned simply by informing the carrier?

It really is that easy!

½ of 1% Mark off / Bad Debt

The bad debt/mark off in the premium finance industry on average is only .5% of accounts receivable.

How is the industry average bad debt of .5% of accounts receivable even possible?

1. State laws that were written specifically concerning the return of unearned insurance premiums. Insurance carrier is the collateral, and the return of your money is just a notification away.
2. Given that the average bad debt/mark-off in the industry is already quite low, it may seem surprising, but it is possible to reduce your bad debt even further. However, achieving this will require assistance from Evolution.
3. A proper minimum down payment will automatically set a good debt to collateral ratio in almost every scenario. The down payment is required to allow us headroom to request cancellation and receive the unearned premium (per-state laws) before collateral position runs out.
   1. Evolution uses the phrase “Day Money Runs Out” and created a special report that will only be printed under collateralized loans.
      1. Want to go with a lesser down payment; Evolution has a spreadsheet that shows a “DMRO” solution for that situation. Knowing your collateral position can help maintain as much revenue as possible.
      2. Get enough of a down payment and nothing should be shown in this report because your collateral ratio is good.
4. Fraud prevention measures like policy verification notices are sent to all involved, the insurance company, the agent and the policyholder. These sorts of measures and many others are why Evolution will never shy away from an audit.
   1. Evolution has produced extensive literature on the topic, including strategies for combating various types of premium finance fraud. Additionally, its software incorporates numerous built-in countermeasures to ensure security and peace of mind. With our support, you can confidently make the safest transition into this evolving market.

Insurance Carrier Diversification

Concentration by carrier limits is important because all of the unearned premiums must be refunded (by law) from the insurance carrier or MGA (as applicable) to the premium finance company (you the bank) within a specified period of time.

Diversification helps mitigate risk if the insurance company goes under. A. M. Best ratings help keep abreast of current carrier positions. Evolution’s software can import current A. M. Best ratings and report current receivable balance for each carrier for review.

This risk has not stopped huge banks from doing premium finance but it’s a risk they consider. See Insurance Company Ratings Explained at bankrate.com

Admitted Carriers

Admitted Carriers are insurance companies that have been licensed, and or otherwise approved by the appropriate state authority to issue insurance policies in the state. They are subject to regulation by the state including coverage and price regulation, and they are also covered by the state insurance guaranty fund.

Non-Admitted Carriers

Non-admitted Carriers are insurance companies, which are approved but not licensed to do business in the state, are not subject to all the regulations of a state and are not covered by the state insurance guaranty fund.

Power of Attorney clause

Historically all insurance premium finance agreements/contracts (PFA) have a Power of Attorney clause within whenever possible by state law.

Evolution’s forms including the loan agreement have been approved in all states and is used by major premium finance companies in the USA, Canada, Puerto Rico, and Jamacia.

Below is an example of what is on every single PFA:

"The undersigned Agent has read the Insurance Agent's Representations and Warranties on the reverse side and makes all such representations and warranties recited therein and agrees to be bound by the terms of this Agreement."

The Agent then signs the PFA attesting to Representations and Warranties, followed by the policy holder.

Evolution can provide sample forms.

Mitigated Operational Risk

Evolution believes we have integrated the right tools and help for mitigating operational risks by creating innovative solutions over our 4+ decades of developing software specifically for the premium finance industry.

Internal and external risk reduction has been thought out extensively before implementation. We do this by working closely with those tasked with these specific premium finance operations. We have listened to and helped many different banks and premium finance companies over the years. We are confident that any concern or problem you encounter is one we have already addressed in the past.

The majority of operational risk mitigation is covered by the underwriting and initial software setup questions. This allows you to get a certain level of scrutiny that you might find helpful, especially with initial migration to the industry. Evolution has developed an impressive array of suppletive tools with the expressed intent for risk mitigation exclusively.