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January 18, 2023

Rise in business failures increases urgency for businesses to secure Trade Credit Insurance

Escalating energy costs, record inflation, supply chain disruptions and higher interest rates are all being blamed for a rise in company insolvencies.

Now the concern is that insurers may soon - and suddenly - lose their appetite for trade credit insurance.

Even to the most financially robust business, that matters, reports RBIG Credit Insurance specialist Dave Sterlini.

The latest monthly company insolvency statistics make for grim reading. Indeed they are just the latest chapter in an ongoing story of rising business failures in recent years.

Figures for December 2022 show company insolvencies soared by 32% year-on-year. Compared to the same month in 2019 - pre-pandemic - they'd risen a staggering 76%.

Compulsory liquidations were over three-and-a-half times the number recorded in December 2021, with 183 businesses being culled. An increase in HMRC winding up petitions was one reason cited for so many companies being buried in the corporate graveyard.

Retail, along with hospitality and construction are frequently cited by economic commentators as the most fragile sectors within a fragile economy.

But, of course, no business is immune to being blown away by the vicious headwinds, not least because when one business fails it can sometimes take down one or more with it.

Even the most financially robust businesses can take a hit, injurious or fatal, when a company they supply hits the buffers.

credit insurance

Credit insurance protection

This is why trade credit insurance has been an increasingly vital cover. Put simply, it guards cashflow and the bottom line by protecting against the late or non-payment of invoices for products or services rendered.

We've been banging the credit insurance drum long and loud. Last summer, we noted that despite continued uncertainty, trade credit insurers' appetite remained hearty. That, though, may be about to change.

Rates have not been matching risk, they say, and that's clearly not sustainable.

Credit insurance

Frederic Bourgeois, managing director of credit insurer Coface, told Commercial Risk magazine that "appetite is starting to change, though very slowly, and we know from experience that some underwriters can change their position rather dramatically as claims start to come in."

Another key credit insurer, Allianz Trade UK & Ireland, notes that insolvencies are increasing not just as a result of rising energy costs, inflation, interest rates and wage bills, but as state pandemic support is withdrawn. Its research shows UK government schemes are currently sustaining some 4.300 businesses.

The insurer's CEO, Sarah Murrow warned that "the increasing number of challenges that businesses will face from higher energy prices, other input costs and inflationary impacts will increase the level of business insolvencies so this could have an impact on the capacity and pricing that we see in today’s [credit insurance] market.

Rising claims, lower capacity?

Pointing to a rise in claims in 2022, with a further increase firmly forecast for this year, Bourgeois reports that whilst the credit insurance market remains relatively benign "it is fair to point out that for marginal risks, this capacity is reserved for existing clients, hence opportunistic requests will struggle to find sufficient support”.

We may debate what counts as an "opportunistic request" but the message from credit insurers seems clear enough. In the words of Nat King Cole, there may be trouble ahead.

Whilst we may not dance, we need face the music.

If you already have trade credit insurance, our advice would be to prepare for your renewal as early as practical. Proof of the measures you have taken to insulate your business from client failure will clearly assist in maintaining your cover and minimising your premium.

Time for action

If you've not yet taken out credit cover, act quickly if you think it's a protection from which your company might benefit.

In normal times, premiums and availability vary considerably between credit insurers. In volatile times such as these we can expect even greater differentials.

The industry consensus - which we share - is that the market is likely to harden this year. Insurers may tighten eligibility criteria and even withdraw from sectors wholesale. Where cover is offered, premiums and deductibles will rise in line with risk.

Expert support

At times like this, the support of an experience commercial insurance broker can be invaluable.

We know the market, the varying appetites of insurers within and across sectors, their sweet and sensitive spots.

We can advise on the kind of data and protocols they are looking for to asses and accept risk.

And we can use our independent expertise to scour the market for the most appropriate cover at the most appealing price.

So, if you've got concerns about how the short-term economic outlook might negatively impact your otherwise robust business, why not ask the experts.

We'll happily offer a personal consultation to discuss your situation and propose the best fit trade credit insurance solution for your business.

  • To discuss your company's specific needs, in confidence and without obligation or charge, contact our Credit Insurance Specialist, Dave Sterlini on 0161 304 5056. Alternatively, click here to drop him an email.