We asked Shaun Purrington for his thoughts on the current developments in the credit insurance market. Shaun is Managing Director of Avenue Insurance Partners, also a Tavistock Group company, providing credit insurance broking services to over 150 UK companies many of which are users or providers of invoice finance.
It’s always during times of economic shock when credit insurance emerges from the shadows and attracts renewed and heightened interest from companies, financiers, intermediaries and even Government. Extending credit is such a critical component of keeping UK trade moving that when the risks of doing so increase, demand for products which can protect from the risk of non-payment rise. It’s estimated that over 90% of business to business trade involves a form of extended credit period up to 90 days in length.
Even before Covid-19 hit the front pages, the economic outlook faced challenges and more insolvencies were predicted. That means it’s more important than ever for UK SMEs to consider protecting trade receivables by adding the option of Debtor Protection to their invoice finance facility. It can be easily added at any time and comes with a competitive cost and comprehensive cover which will respond in the event of a protracted default or insolvency. Many businesses have protected their cash flow and even managed to stave off insolvency because they had the foresight to make an investment in Debtor Protection.
If UK SMEs wish to transfer the risk of credit default, there has to be a credit insurance market (that sits behind the financiers’ Debtor Protection facility) willing to underwrite and price such risk. With the global response to the Pandemic so dramatic and faced with a once in a career event, Credit Insurers are busy assessing their current risk exposures and recalibrating underwriting models. It’s fair to say that some insurers will reduce or cancel existing credit limits for funding lines. At this early stage, the response is somewhat mixed but insurers remain open for business in all but the worst affected sectors of the economy and they will certainly look to support businesses crucial to the fight against Covid-19.
The good news is the general consensus view of the insurers is that the current crisis is not as severe as the banking and economic meltdown some of us traded through in 2008. Insurers have taken some comfort from the interventions of Government on a fiscal level and the swift action by Central Banks. This crisis will pass and the measures insurers have taken now will be temporary but in the meantime, insolvencies could rise to dangerously high levels so my key messages are:
- It’s not too late to speak to your invoice financier or broker about the availability of Debtor Protection
- If you are already a user of Debtor Protection, exercise even more diligence with your trading partners and always check there is an insured credit limit in place before fulfilling new orders
- If you’ve had a credit limit reduced or withdrawn, take comfort that invoices are normally covered up until the effective date of the change
- If your existing financier can’t provide support, consider asking your financier if you are able to be the insured using an externally sourced policy; there may be other insurers that can provide insurance for your receivables. A specialist credit insurance broker like Avenue can access the market on your behalf.
Avenue Insurance Partners Limited is authorised and regulated by the Financial Conduct Authority. Registered office: 20 St Dunstan’s Hill, London, EC3R 8HL Registered in England and Wales: Company number 10322051.