The update below gives an insight into the state of the economy and the outlook for the year ahead. It also provides valuable information on the importance of having relevant credit insurance cover.
A year ago, the prospect of a double dip recession had seemingly diminished, but uncertainty around the Eurozone and a bleak forecast of declining growth and rising unemployment has intensified the threat once again.
Economic confidence levels remain low with up to 90% of businesses saying they are no more confident about the state of the UK economy than they were 12 months ago. The vast majority of firms also think there will be no improvement in the situation during 2012.
There has been a surge in the number of businesses in serious financial distress, prompting a new warning that the UK economy has hit ‘rock bottom’. The financial outlook is poor across almost every sector and region. Professional services reported the greatest increase in financial distress during the last quarter of 2011, with insolvencies up by 61% on the previous year. The retail sector has also been hit hard with a number of household names going into administration recently, including Peacocks, Barratts (for the second time) and Blacks Leisure.
Despite this depressing outlook, it is essential that businesses continue to sell and, in particular, develop export opportunities to trade our way out of this downturn. Credit insurance can provide valuable support by protecting the company against bad debt and providing ongoing positive information on the financial health of customers on the ledger.
Many businesses will remember, following the demise of Lehman Brothers in late 2008, the rescue of the major banks and the fallout in the credit insurance market that followed. This created some very difficult years where confidence in the product itself plummeted after credit cover was removed in droves by some insurers. Lessons have since been learnt, credit insurers have completely changed their underwriting models for assessing risk, and they have become more transparent and visible in their decision-making and in the sharing of information with their customers.
In addition to the above, we have seen new insurers entering the market providing bespoke solutions, some on a non-cancellable cover basis. Gone are the days of the traditional whole turnover structure. Policies are now built around individual requirements and their needs, rather than a one-size-fits-all approach.
The broking industry is also working hard to raise awareness of the challenges facing their customers. BIBA has joined forces with professional bodies including Business Innovation & Skills (BIS) and UK Export Finance (previously ECGD) and this approach has already started to yield results with the launch of ExiP, a product that provides guarantee of payment in difficult export territories and where cover is not available in the private market.
The message is clear, whilst times are difficult, insurers are open for business.
The challenge remains to convince businesses of the value of credit insurance. When times are difficult and Finance Directors are looking to reduce costs, credit insurance may appear to be a luxury you can’t afford. However, given that having a credit insurance policy can save a business from going under, we would argue that the question now is not "Can you afford it?", but, "Can you afford not to?".
Sally Del Principe,
Associate Director and Credit Team Manager
