A blog by Martin Williams, external affairs spokesman of Graydon UK, focusing on business risks - from fraud to late payment. Martin has has spent the last 35 years in the credit information industry, and has been with Graydon UK, one of the top five commercial credit agencies in the UK, for the last 20. Apart from his PR duties, he teaches credit analysis to risk professionals and helps educate SMEs on the importance of maintaining a good credit rating. Martin is a Fellow of the Institute of Credit Management and is a sitting member of the Institute's Think Tank. He was also honoured by Credit Today, after being included on their Credit 100 list of people who have had the greatest impact in the credit industry during 2008, 2009 and 2010.
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11 Sep 2009
Judging by some of the comments I've heard after the publication of the news story "Phobia over secret accounts threatens recovery" (AA- 10th September), there is a lot of irritation and frustration in the market lingering over the actions of major credit insurers during this recession.
Whether you feel agrieved or not by the insurers' actions of reducing cover on risks, price hiking premium rates etc, you can't argue with the main point Fabrice Desnos of EH is making in the article.He is right to say that companies trading their way out of recession in 2010/2011 may well be saddled with poor credit ratings/scores based on statutory accounts filed at Companies Registry covering the recessionary years of 2008 and 2009. If by that time they are trading more healthily than they were during the recession, then why not share their management accounts to get better credit terms from suppliers and attract higher credit insurance cover from insurers?
Most companies in this country don't credit insure their debts, but almost all companies need a good credit rating from credit agencies like Graydon and D and B to grow successfully. If you can gain a better credit profile by sharing management account data, why not do it? It seems to me that withholding good looking up to date financial data just to get back at insurers seems to be like cutting off your nose to spite your face.
Visitor comments
Requests for companies to disclose non-statutory financial and non-financial data earlier than regulated or privatel is consistently called for by Trade Credit Insurers. However, I believe the request should be rebuked and call for all readers to reject the data information suppliers and trade credit insurers and agents requests for the following reasons:-
a) Our European wide Financial Regulation and Competitive markets are based on no private information being made available to preference one economic participant over another. [Efficient Market Hypothesis Strong and Semi-Strong Froms (which conclude respectively that private information and fundemental analysis should not provide advantage to a market participant to out perform)]. Is the receipt by a trade credit insurer of non-public information (unique to the insurer, having used it's economic leverage to procure) on an economic operator to utilise for a private/perferencial artibtrage profit opportunity for itself acceptable in light of the regulations for free markets and efficient markets? (When the general Trade creditor insurers general claim is it's independance to stand behind a 3rd parties claim on the economic agent).
The provision of any private information to a Trade Credit Insurer to support a suppliers trade with the economic agent, would place other suppleirs and substitutions providers at an economic disadvantage. The business community and state should not be supporting or allowing the trade credit insurer to receive such advantage seperately from both the existing suppliers to the economic agent or another other potential supplier, investor, insurer, abnker or capital provider (i.e ID lines) in the European Community. Our free market regulations are in place to faciliate all market participants being placed on a common footing.
b) Credit insurance firms accept the aggregate risk in trade credit. The Insurers build models and conduct rear view driving analysis to determine the underwritten risk. We have learnt from our banking collegues that the reliance on your past and models are insurance operating risks as the underwriting decision tool sets are flawed when faced with certain risks. Due to the very nature of trade the charateristics i.e. Scope, Scale and Maturity = High Value, Low Volume, Infrequency, seasonality, aggregation compounding and secondary funding nature) the tools used to underwrite on an aggregate basis also fail over the standard business cycle (in growth periods leads to insurer over optimistic bais and in points of weak credit cycle the insurer withdraws capacity and applies excessive conservatism. [These are the trade credit insurers own operating problems, not the economic agents or the markets]. Insurers need to address there underwriting methods and tools and prehaps reconsider the nature, scale and scope of what risks they are actually accepting. The solution is not to demand private information access beyond that available to investors or other firms. The trade credit insurer value proposition almost appears we have a right to exist!!! They have no right. [Note providing risk capital to support trading means you should get your legal rights in good and bad times resolved first and not apply economic threats to a firm to access private information because the decision tools in use fail when the firm being demanded of information has no direct relationship with the credit insurer]
I would draw to the readers attention, that trade credit insurers are as culipable as bankers to provide credit capacity and funding in excess of the markets capacity to utilise driving the macro economy and individual firms to over lever and trade beyond reasonable levels. For the trade credit insurer, it also places them in a position of contagnation (Single insurers tend to end up insuring the entire value chain). If this then inturn exposes the trade credit insurer to multiple losses or decision tool failure or excess risk, the solution is not to provide a 3rd parties private and confidenial data to the insurer to place them at an economic advantage or resolve there own risk.
Posted by: GH , 28 Sep 2009
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