With a cloud of uncertainty still hovering above us all, it’s hard to say what the next couple of years will be like. For National Credit Insurance (Brokers) NZ Limited (NCI) managing director Zara Mends (pictured), the current market trends are pointing to what she believes is poised to be an interesting, albeit challenging, period.
“Supply chain issues are the backdrop of what we are currently seeing and are impacting most businesses in some way,” Mends told Insurance Business. “Payment terms are being increased due to shipping delays, credit limits are increasing due to rising costs, and we are now experiencing an increase in debtor non-payment and the ability to collect debts.
“Insolvencies are also increasing after two years of exceptionally low levels of business failures. We expect to see credit insurance claim payments increasing in line with this over the course of 2022 and 2023. This is both reflective of global events impacting supply chains and creating a shortage of in-demand products, and a domestic issue after the COVID-related government stimulus has ended.”
As a full-service broker specialising in trade credit insurance, Mends said the challenges range from having to educate businesses, to arranging full coverage.
The NZ managing director noted: “There has been a false sense of security around debtor payments, which have been exceptionally good throughout 2020 and 2021, and our economy appeared fairly resilient to COVID-related challenges in most sectors, barring a few such as hospitality and tourism.
“Some businesses chose to self-insure with this in mind, and we have spent a good deal of time and effort educating that we cannot assume this trend will continue. Credit limits have increased over this time due to increased payment terms, the demand for product and services, and significantly increased costs and prices – this does not always correlate to a debtor’s ability to pay, which is what credit risk assessment must consider.”
Read more: “Trade credit insurance is not a novelty”
“Our main challenges have been in securing sufficient credit limit support, obtaining information from debtors to assist in the insurer’s assessment of risk, and ensuring the terms of the policy are structured to best work for our clients,” shared Mends. “Full cover is not always possible with one primary insurer, and we have had to work out solutions through top-up arrangements and sometimes with more than one provider.”
An example of such arrangements, according to Mends, is the New Zealand Export Credit Office’s “excellent” top-up solution which works alongside the cover provided by a primary insurer.
“Our near-term outlook,” declared the NCI executive, “is that there is opportunity for businesses looking to consider credit insurance before insolvencies and claims reach a level where it starts to impact the premium cost for this type of cover.
“We are recommending clients consider long-term solutions like multi-year policies to hedge against unfavourable changes to market conditions. As brokers in this type of environment, we must be working closely with our clients and our insurer partners to ensure policies are adapted to changing requirements.”
Mends said businesses are often introduced to NCI by their banking partners where a credit insurance policy can support working capital facilities, adding that companies are expected to turn to these types of solutions “more and more” as cash flow is increasingly impacted.
NCI – which also has offices in Australia, Singapore, and Malaysia – assists clients on all aspects of policy management, from negotiating limits and advising on policy conditions and cover, to providing end-to-end claims support.
“[We] also have a commercial collections agency, and we are starting to see an increase in this activity as debtor’s payments slow,” highlighted Mends. “This is likely to continue, and we encourage businesses to act quickly to collect late payments in an effort to reduce bad debts.”
The broking boss, meanwhile, lamented that trade credit insurance remains an under-utilised tool.
“A specialty insurance product, credit insurance is often not discussed as part of a general insurance review,” Mends told Insurance Business, “and it is not until a bad debt is on the horizon that it is considered, which can be too late.
“Our NZ exporters are probably the most aware of credit insurance where they have a policy to support bank facilities, assess credit risk for overseas customers and markets, and ensure they are transferring the risk of non-payment due to insolvency, protracted default, contract repudiation, and political risks – all of which we are currently experiencing.”
She also cited the domestic construction sector as a big part of NCI’s client base, while at the same time conceding that, overall, there is plenty of room for education in New Zealand about how a business can leverage trade credit insurance.
“All things considered,” stated Mends, “we are in for a challenging and interesting 18 months and will be partnering closely with our clients to support their business.”