Credit Insurance – Appetite Returns
Aug 27, 2010
The extent to which credit insurance influences ‘UK Plc’ only really became evident when cover started to be withdrawn in 2008 and 2009. Credit insurance became a regular topic for discussion in the FT and companies who had historically been the subject of generous levels of cover came under extreme pressure to open their books to the insurers.
Unsurprisingly the underwriters were labelled in some quarters as ‘fair weather friends’ – happy to offer cover and competitive premiums in the good times, but quick to withdraw support when the economy deteriorated.
Is the criticism valid? Lisa Humphries of Credit Risk Solutions feels that, with hindsight, there was an overreaction, ‘In the early part of 2009, the underwriters feared Armageddon.
The volume of claims notifications was increasing month on month and there were real concerns about the market’s ability to sustain such a significant increase in losses. Total paid claims in 2009 were £320m, representing a 95% increase on the previous year’.
‘Encouragingly however Q4 of 2009 showed a 23% reduction in the numbers of claims received and this trend has continued into 2010. Whilst the fear of a double dip recession still remains, normality has returned to the credit market and interestingly Euler Hermes has recorded record levels of new business in 2010.
What opportunities does this create for users of credit insurance? Humphries comments, ‘We are surprised at the extent to which underwriting appetite has returned – in some ways it is almost as if the dark days of 2008/9 never happened.
Early remarketing of your policy is essential and the process should start at least three months before the policy anniversary. In 2009 the probability is that sticking with the incumbent insurer was the only option and it’s hardly surprising that, even for relatively loss free business, premiums increased by at least 30-35%. In the current climate your broker will be more likely to offer a range of options. This brings obvious benefits – it’s important that underwriters compete on both premium cost and availability of cover on key customers’.
Is there a possibility that underwriters have been too quick to restore cover and offer lower premiums? According to Humphries, ‘That has to be a concern. Whilst we will continue to see many unexpected company failures over the coming months our market is fiercely competitive.
For companies who are exposed to bad debt it is, paradoxically, a good time to review available options’.
