Recession-proof trade credit insurance?

Sharon Giddings, AIG UK Head of Trade Credit

With the rate of business failures accelerating and economic indicators suggesting a double dip recession may be on its way, the global business outlook continues to be turbulent.

We believe that as corporates have adapted to this changing environment with robust risk and credit management tools they should be taking a closer look at non-cancellable trade credit insurance to protect cash flows from their client base.

The role of non-cancellable insurance

While companies can’t change the macroeconomic or indeed local environment they operate in, they do have control over their own credit risk management – and by extension the kind of Trade Credit Insurance they buy.

AIG are able to offer non-cancellable Trade Credit Insurance under which there is a commitment to maintaining credit coverage for future shipments to buyers on a client’s policy, even if the buyer posts poor operating results or is downgraded. Likewise, coverage remains intact when a country or entire industry sector runs into trouble.

This provides certainty to policy holders that once a credit limit is established it will remain in place for a specific time – usually the duration of the policy – unless the insured requests otherwise.

With credit limits in place that stand the test of time, policy holders can negotiate and invest in long-term relationships with their existing customers whilst focusing on new sales opportunities. 

Autonomy for Businesses of all sizes 

The product is available for larger companies that already have sophisticated risk and credit management strategies in place who are happy to risk share, or mid-sized companies who are willing to strengthen those capabilities by utilising online platforms.

Once a Policy starts, credit limits will not change for 12 months when they are reviewed and renewed for a further 12-month period based on current information. This gives both continuity of cover and contact certainty whilst ensuring our customers are secure in the knowledge that their insurance partner will remain steadfast during a storm.

This is different to cancellable or whole turnover policies under which policy holders effectively rely on their insurer to take control of their credit management.

Under both cancellable and non-cancellable forms of credit insurance, there will be some form of risk retention. In the case of non-cancellable coverage, that risk sharing is agreed up front prior to policy inception in the form of a deductible set to reflect the insured’s loss experience, risk tolerance, and financing arrangements. In the case of cancellable coverage, the deductible may be lower (or even zero), but unexpected risk sharing can occur due to the insurer’s decision to cancel and/or reduce buyer coverage during the lifetime of the policy.

Certainty in a storm

The additional certainty provided by non-cancellable Trade Credit cover not only means that a company can protect its trade flows throughout the entire economic cycle, but enables it to stand by its customers during difficult periods.

This means its customer-base is more likely to remain intact – and its own sales recover quickly – once the trading environment recovers. AIG’s non-cancellable Trade Credit Insurance products allow policy holders to remain in control of their customer relationship and expand their sales while taking advantage of AIG’s A+ rating, plus its wealth of market intelligence, country knowledge, sector specialists and experienced underwriters.

Solutions to cover your needs

AIG offer a range of solutions from Single Account cover, Top Accounts, Whole Portfolio to Corporates or Banks, via our Trade Finance Team on a local of Global level.

We are seeing some great opportunities and welcome discussions with broker partners about how we can tailor bespoke solutions to meet your clients’ requirements, whether on an excess of loss basis for larger companies, or via our product for mid-sized companies.

To find out more please call Sharon Giddings on +44 (0) 20 7954 8289 or via email: sharon.giddings@aig.com or speak to a member of the UK Trade Credit team.