Demand for trade credit insurance on the rise as future remains uncertain

Richard Reynolds, Head of Strategic Accounts at Atradius, comments on the economy and how the credit insurance industry has adapted to meet changing demand.

Two years ago, the country shut down. We all got very used to using the word ‘unprecedented’; no one knew what direction the economy was going to take. The consensus was that a high percentage of businesses would fail, and insolvencies would escalate sharply.

What economists didn’t predict was the Government support that would follow. Packages like the Government Reinsurance Scheme provided stability for insurers in a volatile economic environment. And other government support measures allowed businesses to stay afloat in the short term, preventing insolvencies.

That’s certainly been true for us here at Atradius. Our annual results for 2021 showed great recovery along with strong customer retention and continued demand for our products and services. By continuing to be steadfast and present for our customers while still pursuing our growth ambitions, Atradius was actually able to exceed pre-pandemic levels of forecasted business performance.

And there are plenty of other examples of industries that recovered quickly and continue to thrive in a post-COVID economy. E-commerce and technology are perhaps two of the best examples. The need for businesses to update their IT infrastructure caused demand in these sectors to skyrocket. From a credit insurance perspective, our demand-led strategy enabled us to positively support growth sectors.

On the other hand, according to FSB, almost 1 in 10 small businesses are facing insolvency because of late payments by clients. This is why trade credit insurance has never been more important for these smaller businesses, as one non-payment could result in their failure.

Not all big businesses were able to weather the storm either. Consumer habits changed overnight, and businesses needed to be agile in their response. Hospitality took the biggest hit of all, with the lack of an online presence making it extremely difficult for many businesses to continue trading. High-street retail stores suffered too, and are still suffering as flexible working practices mean city centre footfall in many places remains lower than it was before the pandemic.

When lockdown was announced, it was imperative for us at Atradius to recognise the decrease in trade for these sectors and manage their exposure down to the levels that were required. We invested, and continue to spend, a huge amount of time and resource in understanding our customer’s trading volume and reflecting this in their cover.

We also had to adapt ourselves. We pride ourselves on our visibility to the market so, like many other businesses, we had to change our Group IT strategy to build upon our virtual presence and continue our strong customer relationships. For existing customers, where we already had those relationships, it was an easier transition, but for new clients, it was an environment that we’d never worked in before.

Certainly, at the start of the pandemic, we saw a decrease in the demand for trade credit insurance. But as businesses started to stabilise, we adapted to meet the needs of our customers which enabled more opportunities for growth. The uncertainty of the circumstances raised the profile of credit insurance, and this continues to be the case. Insolvency numbers are predictable within reason but the last few years have shown us that you can’t fully predict what’s going to happen next.

2022/23 is forecast to be another unpredictable year, with insolvencies and political risks inside the EU on the rise. For businesses worried about the future, expert analysis and accurate up-to-date information is key to successfully and safely navigating through these uncertain times. Knowledge is essential for businesses to mitigate risk both in new and existing trade relationships and this is where the quality of our broker-insurer relationship comes into play.

Looking forward, Atradius’ role continues to be about advising customers of the potential risks, as well as reminding them about the range of cover that’s available. The current uncertainty makes this the perfect time to invest in trade credit insurance.

We’re in the business to write cover for unpredictable losses, it’s what we do, and it’s why the appetite for trade credit insurance is currently so strong.

For more information and a suite of free economic, payment and country reports, visit the publications pages of the Atradius website https://atradius.co.uk. You can also follow @AtradiusUK on Twitter and AtradiusUK on LinkedIn.