Give us (trade) credit

8th November 2017

A BIBA opinion piece on Trade Credit Insurance

Amid worrying signs that businesses are struggling to stay afloat Mike Hallam, BIBA Head of Technical Services explains why firms can’t afford to avoid a discussion about trade credit insurance.

Trade credit insurance can be overlooked when arranging a commercial insurance portfolio. The number of business failures has been relatively stable in recent years prompting many companies to trade without the benefit of insurance protection. Many risk managers are however revisiting their approach to protection against bad debt.

There are worrying signs that the state of the economy and uncertainty arising from various world crises are beginning to impact businesses. Every day there are reports of reducing confidence and there have been big ticket stories of insolvencies including those of Monarch Airlines and Misco the computer reseller. Relevant bodies have pointed out the reversal in the previous repeated fall in insolvencies between 2010 and 2016 and the recent rise in voluntary liquidations as indicators of trouble brewing.

Speaking of the current climate, Mike Clark, chair of the BIBA Trade Credit Working Group, said: “Recent statistics from the Insolvency Service show a 15% increase in company insolvencies for Q3 2017 which is troubling. The prospect of higher UK interest rates, uncertainty over Brexit, the impact of more restrictive US trading policies and even political uncertainties in Spain are reasons why companies of all sizes might want to consider reviewing the ways they can mitigate their exposure to bad debt.”

The evidence of change is growing and it can be reasonably anticipated that there will be a higher demand for these insurance products over the coming months. Thankfully the UK trade credit insurance market still has capacity and good risk appetite, but it almost goes without saying that premium rates will inevitably start to harden if underwriting loss ratios deteriorate following a meaningful hike in business failures.

The clear message is – if you own a business and haven’t considered trade credit insurance before now is the time to pick up the phone to your broker and get the protection you need to avoid a difficult situation arising through no fault of your own.

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