Recent weeks have seen a surge in companies enquiring about trade credit insurance amid fears of rising insolvencies and uncertainty surrounding Brexit, according to a Reuters report.
In mid-October, ahead of the then Halloween deadline for the UK to leave the EU, The Newswire reported that sources within the insurance industry had seen enquiries increase.
Around the same time, the collapse of Thomas Cook was also making headlines, with the company’s trade debt cited as one of the factors that drove it into insolvency.
In more general terms, consumer spending was also subdued and the value of the pound – which has rallied somewhat in recent months – is still lower than in recent years.
Driving demand for trade credit insurance
An increase in insolvencies raises concerns surrounding trade debts and particularly insuring against a loss of trade credit due to the debtor declaring insolvency.
In the second quarter of 2019, insolvencies in the UK rose by 12% year-on-year to reach a five-year high.
So it’s no surprise that interest in trade credit insurance has also increased since the summer to reach “incredibly high” levels.
Graham Bristow, managing director of credit solutions at the insurance broker Aon, told Reuters: “There is no doubt Brexit is one theme; people are nervous.”
An increase in claims and premiums
Increasing demand for an insurance product can be expected to lead to more claims, which can in turn drive premiums higher as the insurance industry looks to mitigate its losses.
That has been seen in recent months. Reuters reported figures from the Association of British Insurers that show more trade credit insurance policies in place than at any time since the financial crisis of 2008, a total of 14,000 policies.
In 2018, the number of claims made was up by 60% compared with the previous year, and premiums have also increased – although the insurers’ and brokers’ spokespeople refused to give Reuters an exact number of how large that increase has been.
The exact rise in cost varies between different sectors too, and may be higher in retail, making it more difficult for small retailers to afford cover, and raising the risk of being exposed to losses in the event of company insolvency further up the supply chain.
Crawfords trade credit insurance
At Crawfords, our services are here to help you with any queries you may have regarding credit & trade crediting.
We also have years of practical, hands-on experience at the sharp end of business, so for any further information regarding our specialist accountancy sectors please contact us here.
Production
