Trade | Impact of COVID-19 and the role of credit insurance

Managing credit and counterparty exposure is one of the top risks facing businesses in today’s turbulent economic landscape. The COVID-19 pandemic has moved many organisations to urgently refocus on credit insurance solutions to protect balance sheets, optimise working capital, and minimise the impact of bad debt.

 

Already an economic and trade crisis

Early 2020 has already seen social unrest and political tensions rising with insolvency trends up and uncertainties growing. With the world now awoken to the realities of a global pandemic, it is difficult to see which sectors will be unaffected. According to market estimates, COVID-19 global business disruption could create a reduction in trade of goods and services of around USD320bn per quarter. As lockdowns across countries take effect, we can expect to see significant impacts across many sectors.

Supply chain as key risk factor

Inevitably, there will be a standstill of the supply chain which will cause a domino effect on the economic situation. Many companies are expected to experience a marked drop in turnover and revenue, with the consequence for many being insolvency.

Credit insurance reactions to immediate economic and trade downturn

The credit insurance market is expecting a significant increase in payment defaults and insurers have started to implement plans to review and reduce their insured exposures. Organisations need to rely on their broking advisor to implement pro-active credit limit maintenance processes to help ensure their insurance programmes weather these turbulent times.

Reassuring lenders

Financing could also become an issue in the longer term as banks and financial institutions perceive some businesses as too vulnerable to lend to. COVID-19 will only heighten that sense of banking caution and they will be looking for additional security when lending money, which is where credit insurance can play a larger role in terms of insuring a business’s trade receivables.

Download the pdf here.

Aon Trade Credit insurance contact:

Neil Bhikharidas | Aon New Zealand | neil.bhikharidas@aon.com

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