Brokers Missing Out on Big Opportunities in Trade Credit Insurance Market
Worldwide capacity for the coverage, which protects companies that sell products against the risk of non-payment from vendors, is close to $9 billion and has increased substantially over the last 10 years as more insurers look to benefit from the profitability of the segment. Companies from retail and manufacturing to engineering to software firms can use the coverage.
“Any company that has receivables on its balance sheet has a potential exposure to loss from the inability or failure of a customer to pay them,” says Mark Attley, president of the recently formed Receivables Insurance Association of Canada (RIAC).
According to Attley, North America has a service-driven economy and most of these industries can benefit from trade credit insurance. The coverage is also widely used in export markets with countries and customers where a business has no previous experience or there is a political environment that makes it more of a challenge to do business.
By utilizing the coverage, says Attley, businesses can leverage enhanced borrowing capacity with lenders and financial institutions.
“Receivables are often used as collateral for revolving lines of credit,” he says. “A bank will lend a higher percentage for insured receivables versus uninsured receivables.”
Still, with all this capacity, opportunity, and more interest from insurers, specialists in the segment say the toughest part of this class has been educating agents and brokers on how the coverage works and how it will benefit their clients.
“Our biggest challenge is not really a new one,” says Kerstin Braun, executive vice president in the North America region for top trade credit insurer, Coface. “It’s to make the agents and brokers and the business community aware of this product. We often say that our largest competitor is self-insurance because many companies are not aware of the benefits of this product.”