14 August 2020

Trade credit insurance advice for domestic trade

Trade credit insurance has always played a vital role in building confidence in the global, regional and national economies. With Covid-19 influencing the economic outlook, there are significant challenges that insurers are working hard to overcome for New Zealand businesses. The key points are outlined below.

Visibility of your customers’ creditworthiness

Increasingly, New Zealand insurers are now requiring visibility of customers’ financial information. This is driven by the need to obtain broader underwriting information (similar to how property insurers sought more information on building standards following the Canterbury and Kaikoura earthquakes). There is often a greater challenge in New Zealand because not all private businesses are willing to share their financial information.

While it is common practice in most advanced economies to share financials exclusively and confidentially with trade credit insurers, not all New Zealand businesses are used to sharing this information. This is creating challenges in certain industries (notably construction) as cover cannot be obtained unless they meet the insurers’ assessment requirements.

Financial health of an international parent company

Some jurisdictions outside of New Zealand have been harder hit by the effects of Covid-19. Whilst a New Zealand subsidiary might be trading well, a parent company based off shore may well be experiencing more difficulties.  Trade credit insurers will normally underwrite cover based on the ultimate parent company’s financial health because they may have the power to place subsidiaries into administration. This can be done to help withstand losses overseas, for example. Therefore, this can prevent the insurer from providing coverage.

Increased demand for new policies

There is increased demand for trade credit policies in New Zealand, and insurers are prioritising ‘clean risks’ (i.e. applications with low past bad debts).  

Policy premiums

Minimum premiums on trade credit policies have risen. It varies for each insurer and is prone to further increases. 

How Crombie Lockwood can help

If you don’t have a policy and are researching options:

• Our trade credit experts can provide advice on availability of coverage for your industry.
• They have an application form which has been streamlined to go to all insurers so you know what your options are. 
• Include full company name and numbers for your top customers in your application.
• f the insurer does not currently hold recent financials on your top customers, consider facilitating the insurer to contact your customers directly.
• f required, our trade credit experts can work with you to determine supportive information (e.g. whether trading history and/or forward orders information is required).

If you have an established policy already:

• Encourage your customers to share financial information with credit insurers. You can work with our trade credit experts and the insurer for the best approach for your customer relationships.
• Make use of flexible policy conditions that insurers are allowing during the Covid-19 crisis e.g. flexibility to arrange payment plans with customers without requiring debt collectors.
• Review credit control processes and consider external advice.
• Approach renewals by ensuring careful consideration of your estimated insurable turnover. If it is difficult to estimate at this time, you can work with our trade credit experts and the insurer to allow greater premium adjustments should you not meet the targeted amount.
• Consider higher deductibles at renewal. 

We hope you find the information above helpful. If you have any questions or if you would like to speak to us regarding trade credit insurance please talk to your broker.

Client Advisory