PracticeConsultingTrade credit insurers: guardian angels?

Trade credit insurers: guardian angels?

Trade credit insurers aren’t the demons they are made out to be

With the UK economy in recession, trade credit insurance has moved into the
spotlight.

Trade credit insurers cover clients (who are often SMEs) against losses from
trading with companies that go bankrupt, and are unable to pay bills for goods
and services supplied. In the current economic climate, accurate risk management
and underwriting require difficult judgements to be made. Insurers have a duty
to protect customers by helping them to manage risk and, if the worst happens,
by paying claims promptly.

In 2008, 14,086 companies took out trade credit insurance, covering turnover
of £302.5bn. That figure rose from £282bn in 2007, demonstrating the commitment
of trade credit insurers to support clients even in difficult trading
circumstances, by providing them with as much cover as possible and carefully
monitoring their risks. This shows that, contrary to popular belief, trade
credit insurers do have the capacity to take on more clients and insure more
trade, despite the effects of the recession.

In the fourth quarter of 2008, the number of claims grew by 51% compared to
the same quarter of 2007.

Looking ahead, insurers are still preparing for further increases in
corporate insolvencies.

In providing such cover, trade credit insurers enable their clients to do
business with much greater security.

Unlike most other types of insurance, trade credit insurance relies on the
insurer constantly working with their customers to assess credit management
risks. This partnership approach to insurance is unusual but necessary to ensure
existing risks are monitored and new ones critically assessed. This also means
that the customer gets the benefit of the insurer’s professional risk management
expertise.

When it is necessary to stop or reduce cover for future transactions with a
particular trading partner, they are in effect providing risk management advice
about who to trade with, sending a signal about the need to diversify or to
restructure the terms of the transactions entered into by their customer.

What they cannot do is support companies where risks have become uninsurable
­ to do so would put their customers as a whole at risk. Nor can they stand in
the place of banks that are refusing to lend. Withdrawal of trade credit
insurance is a symptom, not a cause, of a business with problems.

Nick Starling, director of general insurance and health,
ABI

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