It is the kind of macro backdrop that can rewrite a broker's risk register overnight. On Tuesday, the Reserve Bank lifted the cash rate by 25 basis points to 4.35%, its third consecutive hike, warning that developments in the Middle East are weighing on inflation and that risks remain tilted to the upside. Westpac is now forecasting two further increases that would take the cash rate to 4.85% by year-end. Treasurer Jim Chalmers hands down the Federal Budget next week into an economy RBA Deputy Governor Andrew Hauser has openly described as facing a stagflation risk.
For about six weeks, a growing chorus of business leaders - including Steadfast CEO Robert Kelly answering a question from Insurance Business - have described our economy as showing strong signs of recession.
The trigger sits 12,000 kilometres away. Since the US-Israel strikes on Iran in late February, the Strait of Hormuz - which carries roughly 20% of global oil volumes - has been functionally closed. Brent has traded as high as US$126 a barrel and was still around US$102 yesterday. The price has eased on peace hopes, but with around 20,000 seafarers stranded in the Persian Gulf and shipping flows expected to take weeks to normalise even in a best case scenario, the inflationary aftershocks are locked in.
For brokers’ commercial clients this is an unpaid-invoice machine. Higher input costs, squeezed margins, slower demand and tighter credit are precisely the conditions in which buyers stop paying suppliers. This is where trade credit insurance can move from "nice to have" to mission critical and yet the conversation, many brokers would concede, is largely not happening.
John Mutton, Community Broker Network’s (CBN’s) chief commercial officer, argued the macro picture should be doing the selling for the broker channel, but isn't.
"In an economic environment like we are in now, trade credit should make more sense, but the reality is, in my view, good brokers will be having these conversations anyway," Mutton said.
Trade credit insurance - cover that pays out when a commercial customer fails to pay an invoice through insolvency or protracted default - is one of the few classes whose claims experience moves in lockstep with the economic cycle. When the RBA is openly war-gaming stagflation, when a single chokepoint is throttling a fifth of global oil volumes, and when input costs, freight rates and insurance premiums are all rising in lockstep, the question is not whether bad debts will rise but how concentrated they will be.
Australia’s SMEs are particularly exposed. Many run on receivables-financed working capital, sit one or two tiers down a supply chain anchored offshore and have no visibility on a customer's deteriorating balance sheet until a payment is missed. The first sign of trouble for an uninsured supplier is usually a phone call from an administrator.
But even in this situation, many brokers don’t have a trade credit conversation.
"Where you have customers that buy and sell goods and are interested in protection against the risk non-payment, you should be having a conversation around trade credit, but many brokers still don't do that,” said Mutton.
The reasons are likely well known inside much of the industry. Trade credit underwriting is technical, capacity is concentrated among a handful of specialist insurers and the product doesn't sit on a standard SME placement schedule alongside ISR, liability and cyber. Brokers who don't write it regularly tend not to raise it at all - even when a client's debtor ledger is a flashing red light.
That currently matters more than it did 12 months ago. Insolvency lead indicators across construction, retail and discretionary services were already elevated heading into the year. The energy shock has now stacked a margin squeeze on top of a demand squeeze, with the RBA itself forecasting GDP growth a little lower than previously expected and household consumption slowing in the near term. Every credit manager in the country is recalibrating exposure limits. Every supplier is, whether they realise it or not, carrying more counterparty risk than they were just weeks ago.
The opportunity for brokers is straightforward. Clients buying or selling on credit terms - which is to say, almost every commercial client of any size - are running a balance-sheet exposure that is now materially worse than it was a quarter ago. Raising trade credit isn't an upsell. In this market, it could be seen as a duty-of-care conversation.
