Stuck Between a Rok and a Hard Place

Over the last 2 years, credit insurance, and the insurers, have a pretty hard time defending themselves against attacks from the press, the public, and their own customers. Many people have placed a lot of blame for the impact of the recession in the hands of the credit insurance industry, I think with varying degrees of credibility, and it would appear that we could find ourselves in a similar situation if we are not careful.

Back in 2008, many companies warned of the negative impact credit insurance was having on the construction industry, with a massive reduction in available credit limits, coupled with an increase in insolvencies and claims placing major strain on supplier lines, and supplier confidence. However, with claims ratio's running at circa 130% at times in the last couple of years, it is hardly surprising that insurers where taking steps to protect themselves. It must be remembered that a credit insurer has a duty of care to their customers, their shareholders, and their staff. Unfortunately, this duty of care will inevitably lead to conflicts of interest, and certainly conflict of opinion.

The approach taken by most insurers to solve this problem was to encourage more active communication between insurers, their customers, and suppliers to try and keep credit lines open, and make the flow of information as free as possible. The major credit insurance companies have openly encouraged companies to supply management figures to them, with most setting up dedicated teams and email services to ease the flow of information. According to a recent Atradius publication, they have reinstated cover on over 100,000 buyers so far this year, and the process is continuing. Atradius reinforced this position further by stating they have "just opened up cover on 44,000 additional UK risks...... an estimated increase of £2bn potential cover".

Doubts still remain over what the future holds for the credit insurance industry though. With fears of a double dip recession becoming increasingly visible, and with pressure building on the order books of the construction industry, questions will be asked about how credit insurers will react this time round. Insolvencies in the industry fell to 271 fatalities in July 2010, compared to 382 in July 09 and administrations in the sector have also fallen for 5 consecutive quarters up to Q2 2010.

Here is the difficult part. It is widely believed that public sector cuts will see a reverse to this trend, with a difficult autumn and winter set to bring further damages to the industry. In Q2 2010, the construction industry was still one of the highest offenders in issuing profit warnings (behind Travel and Leisure, and Support Services), and if the cuts run as deep as people suspect they will, then surely the risk of this increasing is on the cards? With Rok, one of the largest and well known construction companies in the country recently suspending their Chief Finance Officer due to "serious failings" in financial and operational controls, this will surely have construction underwriters squirming and looking closely at their sector. Recent figures have shown Rok making a pre-tax loss of £3.8M, with a drop in revenue to £308.1M, down from £364.8M the year before.

The question to be asked is have credit insurance companies, brokers and advisers spread the message of sharing information enough to ensure that they now have the information to maintain cover in this sector, and to positively underwrite and support a major factor in this countries recovery in what will probably be difficult times to come. Patience also has to be shown by customers as well, who must understand that credit insurance is there to support good risks, whilst identifying the poor risks, and moving their customers away from this. If an insurance company refuses cover, rather than lambasting them, ask yourself why they have done this, and take prudent steps to ensure trade is as secure as possible, and communication is open and honest between all parties. Now is not a time to play the blame game, but to work to get the best results for all parties.