In the face of a rapidly changing COVID-19 market, the rules of lending and credit have shifted. The economic implications of such changes are extensive, and for many businesses, mounting customer debt sits atop the challenge list. Trade Credit Insurance offers protection to businesses in the event their customer (buyer) fails to pay for goods or services purchased on credit, but will it stand the COVID-19 test?

Here’s how Trade Credit Insurers are responding to COVID-19, and how we can further assist.

 

Trade Credit and COVID-19: An unprecedented disruptor

When normal trade and economic cycles are disrupted, rates of business insolvency can rise, triggering a domino effect. For example, if a building developer has cash flow issues, this can impact their builder, who in turn cannot pay their tradespeople, who consequently cannot pay suppliers.

In Australia, the usual disruptors to trade and economic cycles are caused by Government policy, or actions by banks to restrict lending and credit. COVID-19 is an entirely different disruptor on a scale never seen before. Trade Credit Insurers have responded in various ways to curb their potential losses. Cover has been reduced or withdrawn in some cases, leaving businesses without insurance or with new restrictions on their trade credit insurance and unsure whether to continue to supply other (often quite healthy) businesses. 

 

What does this mean for Trade Credit Insurance?

We have seen a mixed response from Insurers worldwide to COVID-19. One of Australia’s major Trade Credit Insurers, QBE Trade Credit, made the decision to cut back on some of their trade credit protection cover in response to the crisis. QBE subsequently responded to feedback from the market by reinstating the majority of reductions in credit limit values that were nilled, to 50% of their original credit limit value.

European-owned insurers such as Atradius, COFACE and Euler have responded in more pragmatic ways. Euler and COFACE are still considering some new business cases and Atradius have simply asked all policyholders to review the cover they have and voluntarily reduce or cancel any unnecessary cover. COFACE are looking at exposures and industries on a case-by-case basis. Euler is taking a similar approach and, thus far, our Honan brokers have been able to secure increased cover in the food manufacturing sector. Bond and Credit Co are still delivering cover for existing clients.

In Germany, Atradius is leading a push by insurers to seek Government support/guarantees so they can continue to provide cover, particularly to essential industries. We understand QBE has approached the Australian Government for similar support.

 

How can Honan help?

We continue to advise our clients in line with the latest updates we receive from Insurers across the globe. Right now, we’re in regular contact with all our trade credit clients to ensure they remain within the terms of their trade credit cover. We’re also working with Insurers to assist our clients in maintaining supply to their customers where demand remains strong.

 

Our commitment to Trade Credit Insurance clients through this time: 

  1. Assistance and advice about maintaining cover on key buyers and obtaining cover on new accounts where demand in the current environment has increased
  2. Advising clients on the actions they can take to ensure their cover is not compromised in the event of their customer seeking extended payment terms
  3. Advising clients when their policy MEP (Maximum Extension Period) expires, and when an overdue account needs to be flagged with the Insurer as a potential claim
  4. Assisting clients with actions to collect overdue customer debt
  5. Assistance in lodging claims and actioning follow up to ensure claims are paid in a thorough, timely manner.

 

With you all the way

We will continue to liaise closely with Trade Credit Insurers to keep you updated through COVID-19 and beyond. You can find the latest news and information by visiting our Honan News Hub, LinkedIn, or Terry Phillips from our team directly:

 

Terry Phillips Trade Credit & Surety Advisor – Corporate Insurance & Risk Solutions

terry.phillips@honan.com.au

0408 007 741

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