COVID-19 and the Trade Credit Insurance Market

COVID-19 and the Trade Credit Insurance Market

| May 04, 2020
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By David Clark
Vice President, Credit and Political Insurance, ARI Global

Trade Credit Insurance (Accounts Receivables Insurance) will protect your business against the unexpected commercial and political risks that exist in most economic sectors today. The first line of defense is better information and understanding of the risk. This precaution is even more important when exporting or seeking new opportunities. The global presence and expertise of most carriers that provide Credit Insurance offers the insight to set ratings and give advice based on risk experience worldwide and at the local level. But when the unexpected does arrive like today, our clients can be confident they are protected when their customer files for bankruptcy or simply does not have the ability to pay.

Current Credit Insurance Market Trends

With the pandemic most carriers have a wait and see approach to new coverage, however, with the proper information and risk analysis there is availability. Certain industries are tough, and others can be classified ‘very tough’, but even in very tough industries there may be capacity offered. Globally, the experts are forecasting at least a 20% increase in insolvencies (25% in the US, 15% in China and 19% in Europe). Overall global trade is forecasted to fall 15% (trade losses to be at least $3.5 Trillion).

Industries that are considered tough include: transportation, agriculture, metals, and paper. ‘Very tough’ industries include retail, automotive, travel, service, and consumer goods.

What to Expect

Going forward, companies that have Trade Credit Insurance can expect to see tight coverage, but if used properly the information that is provided will help guide them as an extension of their credit departments. Executives need to be aware of “false starts” and customers that do not have the liquidity or cash flow to recover. Just because you have done business with a customer in the past does not mean that they are going to be in a good credit position now. In fact, many would argue that the credit ratings are so bad that finding a customer without problems will be impossible.

It is forecasted that the banking and financial groups will tighten credit requirements going forward to protect their risk strategy. Adding Credit Insurance or similar hedging products like Letters of Credit are going to be required not just suggested for many banks. Further, collateral on a company’s value is going to be pressed so any coverage can offer the business an advantage sooner.

For more information please contact The Koch Co. at 402-861-7000 or ContactKoch@hakco.com

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