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Trade credit insurance market – in the spotlight

Trade credit insurance market – in the spotlight | Insurance Business UK

Trade credit insurance market – in the spotlight

The UK economy is facing nothing less than a perfect storm of external factors - with political, economic, social, technological, legal, and environmental considerations all bearing down at the same time. The stage is set for significant financial upheaval among businesses across every sector – and so it’s little surprise that the spotlight is falling on the insurance and risk management solutions best placed to support the SME to mid-corporate market through this time of crisis.

Having served the market for some three decades now, Umberto Oliva (pictured), director for trade credit at Verlingue, is well-placed to appreciate how the role of trade credit insurance comes into its own during times of crisis – with the current economic environment offering no exception. Up until recently, he said, as a product, trade credit simply didn’t get the level of support it deserved.

“When the pandemic occurred, however, the government did show support and they were fantastic in how they supported the key credit insurers with investments allowing underwriters to maintain the levels of cover for the businesses impacted by the supply chain challenges,” he said. “Trade credit insurance underwrites an estimated £350 billion of economic activity for more than 630,000 businesses in the UK each year. And that just shows how key credit insurance is and how fundamental it can be in supporting businesses.”

Read more: Verlingue CEO on the advantages of having an independent spirit

The role of credit insurance goes beyond just offering protection in the event another business goes insolvent, he said, but is also there to offer insureds easier access to finance, confidence in their diversification strategies and early warnings about high-risk companies. Done right, credit insurance can bolster entire supply chains.

With trade credit so instrumental to maintaining the homeostasis of economies, Oliva, who has long been a passionate advocate for this coverage, noted that an instrumental element of a broker’s role in this market is to elevate the profile of this product.

“I think it’s the duty of both the market and the broking community to keep trade credit in the spotlight,” he said. “It’s important that we get the message out there that this is not something just to be interested in right now. I mean, look at the positives [of this product]. To name a few, you get real-life information from underwriters – who are the ones assessing management accounts - and you get a holistic view of the risks you face.

“And as a broker, I’m independent and I need to give the best advice so I can make sure clients are in a place to make an informed decision, so they can go into tender on a project with their eyes wide open. [And we can support] clients in doing their own credit management policies and procedures, which I think is fantastic.”

The Verlingue team works less as a typical intermediary just supporting clients with placing cover, he said, and more as a business advisor, proactively working with them to mitigate any storms on the horizon. He and his team are partners to the clients and finance teams they work alongside and support them in putting the right procedures and processes in place that allow them to develop a truly holistic approach to risk.

“You can never stop a catastrophe from happening,” Oliva said. “But if you can pass on some of your knowledge and experience to your clients, you can assist them in recovering from that… And it can work positively as a sales enabler. That intelligence and that business advice are what we can offer clients as an independent within the specialist market.”

Exploring some of the natural extensions of the trade credit offering, he highlighted that sophisticated companies can use the product for budgetary purposes or as a sales enabler. By credit assessing new customers before you onboard them, sales teams can grow their customer base with increased confidence. Trade credit intelligence can steer teams away from bad risks, he said, which in turn can boost the health of the entire market as it doesn’t hinge on businesses relying entirely on their trade credit insurance policy instead of the proactive solutions available to mitigate its need.

“I hope the media and the market don’t talk about trade credit now for six, or 12, or 18 months and then, as we approach 2024, trade credit insurance is on the back shelf again,” he said. “We need to move away from the idea that ‘oh, we won’t need it again until the next recession or crisis’. That’s why I think we as a community, and the underwriting market as a community, need to keep the conversation going.”

A cyclical approach to trade credit insurance isn’t doing the product any justice and it isn’t doing the market any justice, he said. And insurance players are not doing the industry any favours by allowing that behaviour to continue. At 12-14% penetration, the UK is lagging when it comes to credit insurance uptake – which stands at between 30-35% in France and north of 40% in Germany.

The wider market needs more active discussions around the benefits of trade credit, as opposed to allowing it to remain a bleak headline every time a business goes bust, he said. Otherwise, the spike in interest the sector is seeing will be short-lived and whenever it looks like the economy is on the road to recovery, it will be discarded again.

“My team ridicule me for this,” he said, “but about 15 years ago my then MD asked if I would buy credit insurance if I had a company and I said, ‘I’d buy it every day of the week and twice on Sundays’. And it still holds true because then I can put my head on my pillow at night and have peace of mind that my product, my machinery, etc. that’s being sold across the world - that debt that may never come in - is insured.”

Read more: Report suggests trade credit risk to increase in the coming years  

The SME world is made up of family-run businesses that are critical to the economy of local communities, he said, and he has seen first-hand the difference that having trade credit insurance makes when the worst happens. Oliva noted that while his role keeps him on his toes day-in, day-out, getting to be part of why a business survives an otherwise calamitous event is what makes it so rewarding.

“It’s challenging but it’s enjoyable,” he said, “because you see those businesses come through, and you get such wonderful messages and emails from clients thanking you for helping them through some of the toughest experiences of their lives. You certainly buy a lot of goodwill from just rolling your sleeves up and getting involved.

“And I think that’s one of the most joyful parts of my job… when our team get those messages. It’s like getting lots of birthday cards from people you didn’t think would ever want to write to you! But that’s what gives me a spring in my step in the morning, knowing I’m going to have the opportunity to help somebody today.”