Brexit - What's next for the Credit Insurance world?
The news on Brexit just keeps on coming and rightly so, as the political situation changes daily. Theresa May is now our Prime Minister and she is currently building her cabinet, which entails some surprises, the main one being Boris Johnson becoming the new Foreign Secretary. Share prices seem to be stabilising and the pound has started to improve although it's still nowhere near where it was pre Brexit. The Bank of England has just announced they will maintain the current interest rate at 0.5% for the time being, but for how much longer? One thing for certain is that Brexit will happen and article 50 will be triggered as Theresa May stated "Brexit means Brexit".
What's next?
The next process will be making arrangements on what leaving the EU actually means and organising trade agreements with the countries that the UK deal with that were previously organised by the EU. Quite frankly there is a fair amount of work to do, all of which should come to light over the next year or so. In the meantime, Atradius (our credit insurance carrier) has informed us that there is going to be no impact in their stance to underwriting for UK markets for the short term.
Pound weakens
As everyone knows the British Pound has weakened against most currencies across the world since the EU referendum. This would seem a good time to export goods and services as foreign companies will be able to take advantage of their stronger currency and get a more competitive price from the UK. Would you be willing to start exporting and to take on new markets to increase your turnover? Maybe it's a bit risky, but credit insurance is here to help curb that fear of risk.
What about the companies that rely heavily on imports? Well this is a different matter. The pound has weakened by about 10% against the major currencies, if a company is selling goods that are imported with a margin of 12%, the exchange rate has instantly reduced their margin to less than 2%. How do they react? Will they increase their selling price or will they have to cut their costs. There is little appetite for consumers and businesses paying more, so ultimately the importer is put under a lot of strain. Retailers generally tend to import so this already strained sector may be put in a more stretched position and effect their cash flow and ability to pay their suppliers. Export credit insurance policies and domestic credit insurance policies are therefore very important with regards to exchange rate variations. Companies that were on the brink before Brexit could well not survive the shockwave of these extreme currency fluctuations.
Key points about credit insurance
- Based on a company with up to £1,000,000 turnover selling within the UK/EU, the total premium would be in the region of £3,600 for a credit insurance policy which compared to a car insurance policy of say £500 for a £15,000 car, it is relatively inexpensive!
- Credit insurance protects what is often a company's largest asset.
- Up to date information on your clients at your fingertips - credit insurers have a greater insight on markets and companies around the world.
- Credit insurance improves your cash-flow as it promotes improved credit control.
- Some credit insurance policies include cover for debt collection and legal fees
"In the current climate of uncertainty, politically and inevitably economically, guaranteeing that you will get paid for your invoices has never been so important. With the relatively low cost of premium and proven worth of credit insurance, now is the time companies should secure theirs sales ledger by taking out a policy." - Christian Hoy (Managing Director of CMR Insurance Services Limited)