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3 June 2020
Trade credit insurance has always played a vital role in building confidence in the global, regional and national economies. With the new economic outlook driven by Covid-19, however, there are significant challenges that insurers are working hard to overcome for New Zealand businesses. The key ones are outlined below:
New Zealand insurers are now requiring visibility of customers’ financial information. This is driven by the need obtain broader underwriting information (similar to how property insurers sought more information on building standards following the Canterbury and Kaikoura earthquakes). There is often a greater challenge in New Zealand because not all private businesses are willing to share their financial information.
While it is common practice in most advanced economies to share financials exclusively and confidentially with trade credit insurers, not all New Zealand businesses are used to sharing this information. This is creating challenges in certain industries (notably construction) as cover cannot be obtained unless they meet the insurers’ assessment requirements.
Some jurisdictions outside of New Zealand have been harder hit by the effects of Covid-19. Whilst a New Zealand subsidiary might be trading well, a parent company based off shore may well be experiencing more difficulties. Trade credit insurers will normally underwrite cover based on the ultimate parent company’s financial health because they may have the power to place subsidiaries into administration. This can be done to help withstand losses overseas, for example. Therefore, this can prevent the insurer from providing coverage.
There is increased demand for trade credit policies in New Zealand and insurers are prioritising ‘clean risks’ (i.e. applications with low past bad debts).
Minimum premiums on trade credit policies have risen. It varies for each insurer and is prone to further increases. At this point in time, NZ$16,000 (GST not applicable) is a general minimum premium (up from $12,000).
If you don’t have a policy and are researching options:
If you have an established policy already:
We hope you find the information above helpful. If you have any questions or if you would like to speak to us regarding trade credit insurance please talk to your broker.