Trade credit insurance is making it easier for companies to interact with their suppliers around the world, and usage is soaring as global corporations recognize the risk-mitigating benefits.
The other favorable outcome is more-rigorous credit reporting, which permeates all the company's finance and credit groups. Managers in corporate finance can ask the various division heads the hard questions about incoming payments and outgoing shipments-the questions its insurer wants answeredto gauge the condition of the company's accounts receivables.
"It takes the politics away from the process," says Rabinowitz, referring to the pointed questions on payments his department asks of the various divisions' finance managers-from the consumer goods division that ships L'Oreal eyeliner to drugstores to the professional products divisions that sends hair-coloring potions to salons.
L'Oreal is not alone is seeing the benefits of trade credit insurance.
Favorable market conditions, including the entry of new players and products, abundant capacity and attractive prices, has led to consistent growth of the business, says Morel, adding that in 2012 its members insured
But even as a greater number of US companies are now signing contracts for the trade credit cover, they still remain far behind their European counterparts, says
European companies have been the traditional buyers of this product since
The entrance of new players offering recently developed non-cancelable coverage, coupled with the monoline insurers' expanded array of products, has generated activity. Some of the newest entrants include Equinox Global, a Lloyd's of
The traditional cancelable coverage gave the insurance company the option to pull back on coverage for an insured's new shipments to a buyer deemed too risky, though claims would be paid on existing shipments.
The so-called non-cancelable contracts are typically written for a year. In reality, Moral says, these policies are essentially the same as the cancelable contracts, but they are written with provisions that let the insurer cancel the coverage for the buyers of an insured that becomes nonpaying. The difference is that a time limit would be included before the cancellation would take effect.
Kornblau estimates that cancelable coverage makes up about 80% of the premiums written in the overall market worldwide and around 70% of premiums in
IMPROVED RISK MONITORING
The sophisticated credit monitoring services long offered by the larger insurers writing cancelable coverage has enticed new corporate customers frightened by the fiscal crisis that left so many of their suppliers unable to pay their bills. For smaller companies with less than
"It [trade-credit risk insurance] can be a risk mitigation tool as well as a credit monitoring service," says Beiden, whose firm is part of
Kornblau says the retail industry-a sector known for wide shifts in sales-remains one of the largest users of this type of cover. Other significant buyers are companies selling to the chemicals, metals and mining industries-volatile industries with wide shifts in prices and supply. *
Most Popular Stories
- Obama Administration Releases Proposal to Regulate For-Profit Colleges
- Koch Brothers Step up Anti-Obamacare Campaign
- Elizabeth Vargas' Husband Marc Cohn Addresses Rumors
- Keurig Adds Peet's coffee, Alters Starbucks deal
- U.S. to Relinquish Gov't Control Over Internet
- Quiznos Files for Chapter 11
- FDIC Sues Big Banks Over Rate Manipulation
- SoCalGas Reaches Record Spend on Diversity Suppliers
- U.S. Consumer Sentiment Falls in Early March
- Vybz Kartel Convicted of Murder