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With Euler Hermes in its latest Economic Update stating that the Covid-19 crisis has resulted in market volatility reaching levels unseen since the financial crisis, and forecasting that global trade is not expected to return to pre-crisis status before 2023, the question for brokers providing trade credit insurance and those companies using it to facilitate funding and reduce risk is whether it remains a robust business ally. This is an especially pertinent question given that, in response to the crisis, many underwriters have been pulling or reducing limits to reflect the increased risks and growing insolvencies.

In a recent survey to its broker partner members, the International Credit Brokers Alliance (ICBA), which comprises a global team of independent trade credit experts, asked a question about the future of trade credit insurance. These are the responses from five ICBA members – each an experienced trade credit insurance specialist in their brokerage.

 

“With premiums rising and limits being pulled or reduced globally and locally, do you think trade credit insurance will retain its purpose and its popularity moving forwards?”

Kirk Cheeseman, ICBA Australia:

“Yes, even more so now. Trade credit insurance is such an important product for businesses. I had a client who lost 6% of their cover with insurer reductions. Through appeals they recovered 3% back. The 97% of their original cover they still have is now more important to them than ever before. During the global financial crisis and over the past month, more clients are saying ‘I need the cover and I’m willing to pay more for it’. No one would have thought at the beginning of the year that several airlines would fail. Therefore, continuing to insure the ‘unknown’ is even more important into the future. As brokers, we continue to provide value to customers in finding the balance of workable cover, terms and premiums for all parties.”

 

Rene Van Der Voort, ICBA Netherlands:

“In this crisis, risk has increased, premiums have risen and demand has dropped, but this is temporary. In my experience dating back to the early 90s, the demand for TCI has not decreased overall. This is because a major driver for buying it in the Netherlands is the margins clients operate on. Many only do business with very low margins. Because of this they need TCI. If you lose a large client through bankruptcy it can have a big impact on the ability of a business to survive. TCI offers protection. But a second driver in the Netherlands is the fact that banks stipulate that you must have it to get finance. The purpose of TCI will remain intact when this crisis is over.”

 

Danilo Potenza, ICBA Italy:

“TCI is one of the most efficient tools for achieving liquidity. It also offers stability in the market because it covers the risk of non-payment. Covid-19 has completely changed the commercial environment, which has impacted on our sector and in my country. We have seen this in the increase of forecast insolvencies. The consequence is an obvious increase of TCI premium rates if insurers are to continue granting cover. Without adapting the TCI costs to the changed conditions, insurers will have no choice other than to cancel or reduce credit limits. On the one hand we see a ‘normal’ reduction related to the minor sales achieved in the period. On the other hand, insurers are reconsidering the level of cover on those sectors most impacted by the lockdown and on those already fragile before the crisis. Premiums rising, reassessment of credit limits, the end of lockdown and government support schemes will allow TCI to maintain its vital contribution in granting liquidity and stability in the market.”

 

Joerg Kowalewski, ICBA Germany:

“In Germany we are seeing a stronger demand for trade credit insurance with corporates looking to extend the scope of cover due to this crisis. They are rewriting policies and reviewing former decisions that excluded segments or single buyers from trade credit insurance to now include these previously uninsured entities. Why? The corporate experience from the pandemic is that the ‘blue chip’ buyer may not exist anymore. It has been shown time and again the world over that trade credit insurance protects the P&L when default risk occurs without any warning. This is what trade credit insurance was created for – indemnification on unexpected losses.”

 

Richard Pickers, ICBA Spain: 

“In Spain, TCI is very important for businesses and so will continue to function and maintain its popularity. What we have seen with Covid-19 and its impact locally and globally is that underwriters, as they did back in 2008, are making changes ranging from limit reductions to basing their decisions on a new criterion of information sought from businesses. Moving forward, underwriters will have to explain the basis of the decisions they are making, especially when the pandemic eases off. This will entail looking at improving policy terms and conditions and making adjustments that meet the insured’s needs.”

 

About the ICBA

The ICBA monitors all sources that influence trade credit insurance and has a direct presence with underwriters in 45 countries. “This means that we can influence decisions taken at a local and a global level,” says ICBA founder Emmanuel Portier. “We accumulate knowledge on limits reduced, claims declined, contract changes imposed by insurers and other valuable market intelligence. By leveraging our strong relationships, our experience and our first-class reputation we can support businesses in the years ahead.”

If you have trade credit insurance and would like an objective evaluation of your policy in terms of conditions, scope and limits, or would simply like to discuss the benefit of trade credit insurance for local or global trading, please contact the ICBA. Visit www.icba.com