The UK Economic Outlook and Trade Credit Insurance
There can be little doubt that economic performance in the UK has deteriorated since the referendum and this understandably is a relevant factor in considering risk acceptance levels. You only need to look at the press to see that the construction and retail sectors are struggling during the current economic uncertainty. Taking the retail sector as an example, it can be difficult to justify cover on certain companies when there is clear evidence of profit warnings and poor results. The retail sector faces many challenges but the one that stands out is the increase in consumer spending habits online. Coupled with this reduction in footfall, retailers, have significant overheads such as rent, which is weighing them down and making it harder to compete with e-commerce only companies.
Across all sectors there is evidence of a significant upturn in claims during 2018. The ABI published data showing the extent of the increase in claims, for example in Q1 of 2018 claims across the industry were at their highest level since 2009, high profile cases such as 'Palmer & Harvey', 'Carillion' and 'Conviviality' caused significant losses.
From our experience the current economic climate has prompted an increase in new business enquiries and uptake, an increase considerably above growth levels experienced in recent years.
When it comes to trade credit insurance, each potential policyholder is considered on a case by case basis. Their bad debt history and the customers that they are trading with are taken into account and the risk is carefully assessed as with any other form of insurance. Taking a car insurance policy as an example, if a driver drove a very expensive car around the edge of a volcano the insurer would be uneasy. Obviously, this information is not always available to a car insurer!
Trade credit insurance underwriters benefit from being very close to the sectors they underwrite. They gather information from a variety of sources and analyse data trends to consider if cover is possible. Underwriting a company to consider the probability of default is a meticulous process. It is far more than a simple algorithm and takes account of all of the relevant factors. On some occasions cover may not be possible based on the information available and this can often be seen in a negative light. However, a negative decision is a powerful tool and is vital for a business to make informed decisions as to whether they want to offer their customer credit terms. Trade credit insurance is an insurance policy on one hand but also a sales tool to guide businesses to growth on the other.