Rising European trade credit insurance rates are being fuelled by increasing risk and bad debt losses, according to Marsh. Rates have risen for those firms with poor loss histories since the fourth quarter of 2012, as customers increasingly use their suppliers as a source of cash flow funding, which in turn is creating a sharp uptick in claims notifications.
In its paper, entitled
‘European Credit Risks and the Effects on Premium Rates’
, the risk advisory and insurance broking group reports an increase in claims notifications and deteriorating insurance underwriting conditions across Europe since Q412, although demand for trade credit insurance products remains strong and capacity buoyant for stable risks.
“Trade credit insurance claims, in particular from Mediterranean countries and Central and Eastern European (CEE) territories, are hitting the insurance market with increasing frequency and severity through 2013,” said Tim Smith, Marsh’s Europe, Middle East and Africa (EMEA) trade credit practice leader.
“Many firms are unable or unwilling to pay their suppliers on time, choosing instead to pay late to aid cash flow, or waiting until they have received funds from elsewhere in the supply chain. This situation is becoming increasingly common in Europe, particularly in the retail, construction, paper and engineering trade sectors.”
In a bid to combat this growing trend, European Member States were required by March 2013 to comply with the European Union’s Directive 2011/7/EU, which is designed to harmonise the period of payment between organisations and imposes financial penalties and compensation for late remittance.
“While the EU has recognised that affirmative action needs to be taken to tackle the issue of late payments as part of the wider economic recovery strategy, it remains to be seen whether the Directive will have a lasting impact on payment patterns,” said Smith.
“Although European trade credit insurance capacity remains buoyant, insurers are applying more stringent underwriting criteria and it will become increasingly difficult for those companies with poor loss records to buy adequate insurance protection. In order to secure competitive rates from trade credit insurers, evidence of robust financial risk management and claims histories is crucial.”
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