Marsh says some trade sectors have limited cover.
Mounting fears of a UK recession among businesses have led to a sharp increase in the sale of trade credit insurance policies. However, the protection available from insurers is becoming limited in some trade sectors, according to global broker Marsh.
Marsh has noted that the number of enquiries for trade credit insurance from UK businesses has more than doubled over the past 12 months. Designed to protect firms’ cash-flow and balance sheets from bad debt and defaulted payments, credit insurance is only used by approximately 20% of UK corporate businesses.
However, due to the current economic conditions and unprecedented losses, trade credit insurers are re-evaluating their current exposures and are reviewing large numbers of credit lines, resulting in some restrictions or withdrawals of cover for firms in the construction and non-food retail sectors.
Tim Smith, leader of Marsh’s Trade Credit Practice, said: “As the recession takes hold, more and more companies now seek the relative protection and enhanced credit management procedures that a trade credit product can bring to their organisations. However, the current volatility, particularly in the non-food retail and construction sectors, is driving changes in underwriters’ behaviour and appetite towards credit insurance.
“From 2002 to 2007, the ratio of insurers’ losses as a percentage of premiums written averaged between 40% and 50%. This year, ratios are already exceeding 60% and fast approaching even higher levels. We expect this trend to continue into 2009. As a result, insurers have become increasingly cautious in their approach to new business acquisition and are far more rigorous in assessing the risks associated with customers, making it more challenging for firms to secure trade credit insurance.
“Companies seeking to buy credit insurance must be able to present clearly to insurers how they audit and review their current exposures, along with how they manage these key risks. Being able to demonstrate sound credit management procedures is also important for discussions with insurers. Despite the current conditions, the market continues to be receptive, with cover, positive policy structuring and competitive pricing available for good and well-run businesses.”
