The credit insurance market continues to grow as volatility increases, according to a new report by Aon.
Uncertainty around global affairs such as the trade tensions between the US and China and Brexit mean businesses – especially those looking to expand through international trade – are facing increased volatility, according to Aon. Changing purchasing behaviour, increasing consumer expectations and digital transformation are also adding to the disruption.
Businesses have to manage this uncertainty while continuing to invest in new sources of growth, putting increased pressure on balance sheets. Meanwhile, banks are reducing their exposure to corporate credit and trying to de-risk their own balance sheets, Aon said.
This has led to increased importance for credit insurance as a financing tool. By insuring the credit risks posed by clients’ invoices and payment obligations, insurers provide banks more incentive to lend. Credit insurance is also now used by many banks to manage their own risk exposures. Aon estimates that the notional amount of credit insurance covering outstanding bank exposures is currently more than US$300 billion – and growing.
However, there’s still room for increased uptake and awareness of the credit insurance and surety market, Aon said. The company estimated that as few as 20% of CFOs are taking advantage of the full range of solutions available to them.
“Today, business leaders are being faced with ever more uncertainty as they look to navigate through highly volatile economic and political environments,” said Stuart Lawson, chief executive officer for EMEA, Credit Solutions, at Aon. “Against this backdrop, businesses are under increased pressure to both free up capital and manage supply-chain risk. Credit insurance should be viewed as a critical tool in achieving these goals, enabling businesses to more effectively use the credit and capital markets to underpin their strategic ambitions and enable sustainable growth.”