Asset finance contracts and insurance
According to the Finance & Leasing Association, in 2021 their members provided £31 billion of finance to the business sector and public services.
Asset finance is commonly used to obtain tangible assets from office phones and computers to manufacturing plants or aircraft.
It is the third most common source of finance for businesses, after bank overdrafts and loans, and provides significant cash flow and tax benefits for those using it.
When a business purchases an asset (lessee) using asset finance, the finance company (lessor) protects its capital by being able to take possession of the asset if the lessee does not keep up the repayments.
Source: Finance & Leasing Association.
This exposes the lessor to a risk if the asset is damaged, stolen or destroyed. The security for its loan could be reduced to an amount below the outstanding loan amount or it could be reduced to zero.
Lessors commonly protect themselves from this risk by including a clause in the finance agreement that requires the lessee to take out an insurance policy. In the event the asset becomes damaged or stolen, the insurance company pays the lessee, and in turn, the lessee pays the lessor. In some circumstances, the lessor may accept that the lessee replaces the asset on a like-for-like basis.
It is the lessee’s responsibility to insure the assets and show the lessor that it has complied with the contractual requirement to insure the assets.
Whilst this process is legitimate and protects the finance company’s risk, the lessee often has no alternative but to pay this hidden cost.
Bluestone Leasing is an independent finance broker with over 25 years’ experience providing finance solutions to UK businesses. Bluestone Leasing finances a wide range of assets for businesses and are market leaders for financing technology and furniture and fit out.
As a finance broker, Bluestone Leasing works closely with businesses and a large panel of funders to help secure the right finance for their needs.
The surprise for lessees
If the lessee does not take out suitable insurance, or the lessee fails to give the lessor the details of their insurance, the lessor is entitled under the terms of the finance agreement to start charging the lessor for their own insurance.
Lessees are often unaware of the need to insure the assets and are surprised when the cost of the finance is increased to cover the cost of the lessor’s insurance
Giving lessees a choice upfront
Bluestone Leasing approached Specialty Risks to help develop its AssetSecure product. As the front end of the asset finance process, Bluestone Leasing takes responsibility for meeting the lessee’s needs. Bluestone Leasing regularly receives complaints from lessees about the additional charge for the insurance.
AssetSecure is Bluestone Leasing’s solution to the problem of the hidden insurance charge and will reduce the number of complaints it receives about this practice.
AssetSecure is Bluestone Leasing’s branded version of Specialty Risks’s Business Asset Protection Insurance product.
Business Asset Protection Insurance:
- Provides cover that businesses need. It covers the majority of assets commonly financed by businesses including IT, furniture and fit out, machinery and green technologies.
- Covers accidental damage, fire damage, malicious damage, power surge, smoke damage, storm damage, water damage and theft.
- Makes lessees aware very early on in the finance application process that there is a need to insure the goods. It makes it clear that the lessee has 3 options:
- Arrange their own insurance; or
- Take out Business Asset Protection Insurance; or
- Pay for the finance company’s insurance after the finance agreement has been activated.
- Embeds the insurance application. Lessees are given a quotation at the same time as they are given their finance agreement and are sent a reminder that they need to arrange insurance.
- Is easy to pay for. Lessees can pay by invoice or by premium finance and pay for the insurance monthly (interest on the premium finance is charged at the same rate as the main finance agreement).
Specialty Risks has developed a proprietary rating model to ensure that policyholders pay a fair premium for their insurance.
Why Bluestone Leasing chose to work with Specialty Risks
I first met the Specialty Risks’ management team over ten years ago. We’ve always found the Specialty Risks team easy to work with. They get what’s important to Bluestone Leasing and our customers and they go out of their way to help us.
Since I joined the Asset Finance industry in 2006, customers have complained about the insurance that is added to their finance repayments after they’ve signed their finance agreement. We’ve been trying to find an insurance provider who can provide our customers with an insurance product that we can offer to them as part of the finance agreement process. We want customers to understand the terms and conditions of their finance agreement and to let them know what their insurance options are.
We’re clear with customers from the outset. We tell them they can arrange their own insurance or they can apply for AssetSecure. We tell them how much AssetSecure will cost them and give them the option to pay for it every month using our own premium finance agreement. Specialty Risks takes care of all of the insurance policy administration. They even send the customer’s insurance details to the finance company to save the customer the time of having to do it themselves.
Mark Hargreaves, Finance Director
Bluestone Leasing Limited
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