Published by Insurance Business Australia, 22 January 2025
By Daniel Wood
Engage early with open conversations, says CEO
January figures from the Australian Securities & Investments Commission (ASIC) show that business insolvencies this financial year have risen steeply compared to the last two years. Some experts say these grim numbers are plateauing and back to where they were before the government’s COVID-19 pandemic stimulus measures. However, data suggests that SMEs – core business for many brokers – could be the sector currently under the most economic pressure.
“We have certainly seen an uptick in the number of SMEs that have been entering into premium funding loans over the last six months,” said Daniel Gronert (pictured above), CEO of Arteva Funding.
Gronert said these smaller businesses are where his firm’s loan book has seen “really strong growth.” SME businesses that rely on consumer discretionary spending are among those suffering most.
“We are seeing increasing insolvencies in that segment,” said the CEO.
Brokers should start “open and honest conversations”
The CEO said Arteva works with about 1,200 brokerages across Australia. He recommended that if brokers notice that their clients are struggling financially, they should start “open and honest conversations” sooner, rather than later.
“Having open and honest conversations is the best possible solution for everybody,” said Gronert. “Ignoring the fact that cash flow challenges exist is not going to help anybody,” said Gronert.
He said conversations involving a premium funder often find solutions for cash flow problems and help ensure that policy coverages remain in place.
Seasonal pressure and trends
One major ingredient in the current financial pressures, said Gronert, is seasonal.
“Seasonally, we would typically see that post-Christmas crunch, after we’ve had generally higher consumer discretionary spending, lead through to a much quieter and tighter January until the March period,” he said.
Gronert said this “cash flow crunch” that affects many SMEs often leads to his firm’s highest rates of default or dishonour across their loan book.
“Then that rebounds to some sort of normality from April onwards through each year,” he said.
However, despite this currently gloomy period for many SMEs, the wider economic picture is a little brighter.
“When I look at our own experience across the Arteva book, we’ve seen the rate of insolvencies plateau in recent months, certainly since June,” said Gronert.
He said these increasing but plateauing insolvency numbers are in line with a post-COVID 19 trend and “certainly no doomsday scenario.”
Is the economy improving?
Gronert said it looks like Australia has “ridden out” the period of increasing interest rates but conditions will likely be tough for many months ahead.
“We’ve seen a lot of businesses struggle through with consumers tightening their spending to prepare for what could be a prolonged period of raised interest rates and higher costs of living,” he said.
“We may see the RBA move and start reducing interest rates,” said Gronert. “This does provide a little hope for businesses and consumers in that 2025 may be slightly easier than what we’ve seen in the past.”
Arteva says customer support is helping SMEs keep insurance covers
Gronert said his firm anticipated these ongoing tough economic conditions about 12 to 18 months ago.
“So we invested heavily in our customer service and collections teams to ensure that we were well prepared to support those clients and their brokers,” he said.
The CEO said the results of that investment are paying off. Less customers are defaulting on their premium funding loans which often leads to them having their insurance policies cancelled.
“About 18 months ago we were seeing about 72% of clients that had more than two dishonours [missed payments] were actually progressing through to a loan cancellation and policy cancellation stage, and that number now sits at about 60%,” said Gronert.
ASIC’s January 2025 insolvency data
ASIC’s January figures for insolvency rates in Australia show that more than 3,000 companies have entered into voluntary liquidation this financial year. This compares to about 2,300 firms at the same time during each of the two previous financial years.
