Trade credit premiums increasing, says Marsh

European trade credit insurance rates are being hiked by increasing risk and bad debt losses, according to Marsh.

The broker said that rates had risen for those firms with poor loss histories since Q4 2012, because customers were increasingly leaning on their suppliers for cash flow funding, causing an increase in claims.

In a report, European Credit Risks and the Effects on Premium Rates, Marsh reported an increase in claims notifications and deteriorating insurance underwriting conditions across Europe since Q4 2012, although demand for trade credit insurance products remained strong and capacity buoyant for stable risks.

Marsh EMEA trade credit practice leader Tim Smith said: “Trade credit insurance claims, in particular from Mediterranean countries and central and eastern European territories, are hitting the insurance market with increasing frequency and severity through 2013.

“Many firms are unable or unwilling to pay their suppliers on time, choosing instead to pay late to aid cash flow, or waiting until they have received funds from elsewhere in the supply chain. This situation is becoming increasingly common in Europe, particularly in the retail, construction, paper and engineering trade sectors.”

In a bid to combat this growing trend, European member states were required by March of this year to comply with the European Union’s directive 2011/7/EU, which was designed to harmonise the period of payment between organisations and imposes financial penalties and compensation for late remittance.

Smith added: “While the European Union has recognised that affirmative action needs to be taken to tackle the issue of late payments as part of the wider economic recovery strategy, it remains to be seen whether the directive will have a lasting impact on payment patterns.

“Although European trade credit insurance capacity remains buoyant, insurers are applying more stringent underwriting criteria and it will become increasingly difficult for those companies with poor loss records to buy adequate insurance protection. In order to secure competitive rates from trade credit insurers, evidence of robust financial risk management and claims histories is crucial.”