Brexit and other uncertainties have increased business insolvencies and demand for trade credit insurance, writes Stuart Ramsden, head of commercial for UK and Ireland at Atradius.
The trading environment is changing and, with it, the role of trade credit insurers. As demand increases for cover against an uncertain economic backdrop, trade credit insurance has an opportunity to become firmly established as a business essential.
While we are now a decade on from the onset of the recession which rocked the economy, its aftermath is still evident. Change continues to cloud the horizon, compounded by the murky waters of Brexit, which show no sign of clearing imminently.
The financial impact upon businesses is clear. Insolvency levels were up 2% last year and we’ve already seen the equivalent of 40 failures a day in the UK in the first half of 2018. And the trend is set to continue, with our economists predicting insolvencies will rise by a further 4% this year.
While failures are concentrated in the construction, retail and hospitality sectors, no industry is immune. In response, the amount of claims paid out by Atradius increased sharply in Q1 and was around 50% up compared to the same period last year in Q2.
Without these payouts, the insured businesses would have been financially squeezed and for some, they may simply have been unable to bear the blow of unpaid receivables, creating a catalyst of failures along the supply chain.
The good news is that businesses are taking heed of the warnings and are turning to insurers for support. In the first half of the year, we saw new business enquiries increase by as much as one-third compared to last year. With seemingly secure goliath firms featuring in the insolvency line up, businesses are understanding that no player is safe and this is spurring them to act, whether they are looking for insurance for the first time or increasing the scope of cover across all of their lines.
While businesses are looking for protection against non-payment in the form of claims, as an industry, trade credit insurers are now able to offer them much more and support them in the longer term.
Trade credit insurance has evolved away from being a tick-box exercise that only comes into play should things go wrong. As an industry, it is our role to demonstrate this value proposition. Business growth and trade credit insurance are intrinsically interlinked and the insurer needs to be involved well ahead of a contract or new trade relationship being agreed.
Accordingly, to adapt to the ever-changing needs of business, credit insurers should align themselves as trade partners, supporting businesses to navigate the fog of uncertainty from the very beginning of a trade journey. Utilising experts, they can work with businesses to analyse specific sectors, markets and countries as well as individual customers to evaluate risk, whether economic, political or financial.
Insurers and brokers have a prime opportunity to work together to share this message with businesses, as well as evidencing the enhanced quality of service alongside the product to ensure that the perception of the industry catches up with the tide of change.
In a market that is constantly shifting and with the progress of Brexit negotiations still offering no real certainty, trade credit insurance must continue to evolve its proposition and secure its position as a valuable resource for business.
There is a job to be done, and the trade credit insurance industry has a richness of skills to help lay strong foundations for trade in a backdrop where the focus on risk is becoming more acute and new risks are becoming increasingly difficult to predict.
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