Arteva’s economic challenges and opportunities

Gronert said probably the biggest challenge for all finance businesses, particularly lenders, is the rapid rise in the cost of funding.

“The interest rate rises that have been levied by the RBA over the past 12 months are the fastest rate increases in the last 30 years,” he said.

Just one year ago, he said, pricing was based on the lowest interest rates for decades.

The client and broker education process

“It’s an education process to help clients understand that not only are they facing potentially a fairly significant increase on their insurance premium, because insurance premiums continue to increase, but the interest rate on their premium funding loan is also going to be considerably higher,” he said.

Gronert said insurance brokers are caught in the middle.

“It’s also about educating brokers around expectations as well,” he said. “They’re having to sell an increase on the premium and then try and educate their client that everything seems to have gone up at the moment.”

Unlike one year ago, he said, new lending and new client opportunities “are not all rosy anymore.”

“We’re reviewing all of our new business renewals with a different set of eyes now,” he said.

Construction sector pressures

Gronert said the construction industry, retail and hospitality are particularly hard hit and likely to see ongoing drops in demand.

“Construction is probably the main industry at the moment, that is the focal point, not only for us as lenders, but for brokers in particular,” he said.  “We’re probably taking a bit more of a view on our appetite for those types of risks.”

However, he said his firm has no plans to make “drastic changes.”

“What it probably has done is encouraged further communication and conversation with our brokers – we always had really good relationships with them anyway – but it’s about making sure that brokers understand the type of information that we may need to see to help ensure that we can continue to deliver that level of service,” he said.

Gronert said his firm is seeking more insights into new clients and their economic strengths and weaknesses.

“So if they’ve had some troubles or are potentially likely to have some troubles, what can we do to help structure the loan in a way that will help the client or ease pressure on the client but help us all achieve a positive result,” he said.

Gronert said Arteva wants to avoid having clients renew loans they took on last year with terms that may no longer be suitable.

“So if we can be flexible and understand what the client’s potential challenges may be as early as possible then it allows us all to achieve an optimal result,” he said.

Pricing of loans is the “first point” where flexibility is possible, said Gronert.

“Rates have moved up considerably but that doesn’t mean that there aren’t ways that we can reduce the price for clients,” he said.

Delaying the settlement of the premium to the broker is another way of easing financial pressures on clients.

“If there are payment terms that the insurer can offer the broker that allow us to just hold on to the money for an extra 15 or 30 days that will allow us to reduce our rate of interest, which can then be passed on to the client as a slight reduction on their on their interest rate,” said Gronert. “Outside of that, just being [a] little bit more flexible around how the loan is actually structured.”

That structure can be optimised to suit the “seasonal cash flow pressures” of a business, he said.

“Then we can cater for that from day one and actually give them peace of mind to know that they can cover the full risk,” he said.

However, the positive side of the economic crunch for Arteva is more applications for their loans.

“What we are seeing – and this is quite interesting – is a greater utilization of the premium funding product,” said Gronert. “So it’s generally a clear indicator that cash flow is tightening if people are using alternative sources of finance.”

He said it’s typical in tighter credit cycles for credit appetite to increase.

“Banks are tightening their credit processes and tightening their offerings to their clients so we fill that niche,” he said. “Our appetite is typically consistent throughout the economic cycle because we support brokers and we have that security of taking security over the insurance policy.”