As winter now slowly draws to a close, and we start to enjoy getting up in daylight, it’s time agin to look at the the changes in the trade credit insurance market over recent months.
I'll start close to home. In our business we have welcomed 2 new starters – Carol Au Young and Chelcee Witkowski, and by the end of April we hope to have 2 more. This reflects our continued investment in the business, to support our clients through what looks likely to be a difficult year, and to help us manage the growth of the business. It’s a great start to Spring to welcome new, enthusiastic members of the team on board, who can benefit from the vast experience we already have.
By difficult times, I mean economically, and how that impacts on company failures, as the trend referred to in the December newsletter continues. In 2022 UK insolvencies were at their highest level since the banking crisis of 2009 (source - Insolvency service). Admittedly the figures are distorted by a high level of Company Voluntary liquidations, but nevertheless it shows that the world of Corporate Credit is a risky one. According to the accountancy group RSK (and pretty much every commentator I can think of) this year is set to be worse. We’ve already seeing this in the construction industry as the failures of Tolent and Metnor all too recently demonstrate, and sadly it’s a sector that normally leads. You don’t have to have a degree in Economics to work out why - raw material price inflation, supply chain disruption, the cost of energy, and recruiting and retaining staff. What business hasn’t been affected by one of these? If nothing else, the last 3 years have taught us that it’s a very unpredictable world, and the more businesses can do to protect themselves and smooth as many risks as they can is surely a good thing.
What is much more puzzling is why UK businesses persist in keeping their heads in the sand. I have lost track of how many clients over the years I have seen fail after cutting corners, and if I had £10 for every time a prospect (or client) has told me that credit insurance is too expensive, or too complicated, or that they simply don’t need it because their buyers are blue chip (which usually just means larger than them) , or they don’t have a bad debt problem, I would be dining out for years. I mean, do you not insure your building because it’s solidly built and you don’t have a `fire problem’? You don’t deal with business problems by waiting for them to occur, and seeing if you can do anything then, you plan ahead where you can. It’s just common sense.
I can understand it when the cover is not available, though even that must surely be a worrying indicator. Sadly, on this front the insurers don’t really help themselves, in that as the risk environment increases, they start pulling back on capacity. We've certainly seen the start of this, but thus far it’s quite measured and very sector specific. The presence of a new insurer in the small trade credit market - and one backed with serious money, experience and support - can only help to alleviate any capacity problems we do see, and hopefully as a result we’ll have a stable market this year despite the level of claims. Otherwise the indicators all point to a hardening market, with reduced cover in a repeat of the usual cycle of the credit insurance industry.
It would certainly be good to see a break in the cycle of the last 30 years, and for one I would like to be wrong about the direction of travel.
John Cockshutt