During the past year, Covid-19 has heavily impacted both working and living conditions. These unprecedented changes have complicated the situation in commercial trade credit insurance for both insured and uninsured businesses.
Under the current regime of uncertainty, trade credit insurance companies set higher insurance premiums for lower credit limits.
Maintaining the terms and conditions of already existing trade credit insurance policies requires a higher degree of effort in terms of credit limits management, payment period extension and claim declaration.
Credit limits are currently highly volatile on a global scale. As businesses remain temporarily closed during certain time periods, the phenomenon of supply and demand recession has become evident. In Greece there has been an increase in the turnover of supermarkets and companies that belong to the pharmaceutical industry. In the meantime, companies related to the production of chemicals, plastics, fuel, clothing, hospitality services and transportation face great recession. Other countries with similar lockdown policies, similar phenomena are observed. The imminent risk of 10-25% currency devaluation of emerging markets has also become clear during the last months.
The requests for new credit limits have increased and a great need for identifying new potential purchasers that will expand the customer base of insured businesses has risen.
However, the increased amount of arrears due to the current payment period extension has led to a considerable number of credit limit decreases. These decreases mostly concern air transport, hospitality companies and every company that belongs to the industry of HORECA. The process of credit limit revaluation should be carried out with great caution when payments of insured companies start to get reimbursed so that normality is re-established.
Trade credit insurance companies foresee a DSO increase as well as an increase in the risk appetite of creditors. The automatic prolongation of payment periods in their contracts in terms of facilitating the protection provided by the law has already been announced. In the beginning for Greece this arrangement has been set to 75 days. The deadline for a payment that should be completed by 30.4.2020 and then automatically transferred to 15.7.2020. Until February of 2021 we have postponed all checks’ payments. The notification of insurance companies regarding this arrangement is essential, so that entitlement to compensation is preserved in case of non-payment by the new deadlines – whenever this will be.
Despite the Government support, both the number of claims and the level of compensation will double. In countries where credit periods have a length of 30-60 days the number of claim declarations has already doubled. This observation is indicative for the Greek market as well, when the credit periods of 120,150 or 180 days established in the terms of Greek trade credit insurance policies will elapse.
Our prediction for the Greek market does not concern a doubling of claims but it undoubtedly refers to their notable increase. We also expect the implications of this situation to become more obvious the second half of 2021.
In countries like Italy or United Kingdom, the number of claim declarations is expected to be much higher.
As a last remark, we would like to inform you that the number of fraud cases has risen and that there are many fake order requests. In this case, the products are not received by the buyer investigated by the insurance company but by fraudsters. Companies should be very cautious when completing commercial transactions, especially when proceeding to agreements with new companies.
Today an insured company should definitely have an expertise broker for delivering high quality services and this becomes more crucial than ever.
