Back in December, when FPJ featured the issue of credit insurance on its front page, fresh produce firms were increasingly nervous about the cover they were being offered by insurance firms as the UK slumped further into recession.
Credit insurance, or trade credit insurance, is an insurance policy and risk management product that covers the payment risk resulting from the delivery of goods or services. Credit insurance is purchased by firms wishing to insure their accounts receivable from loss due to the insolvency of debtors. A credit insurance policy provides an agreed percentage of cover against the non-payment of debts due to the insolvency or default of an insured customer. A premium is paid to cover a risk for an agreed period of time, up to a given value.
But since the recession, some insurers have been either pulling cover entirely or trying to restrict what they will offer to policyholders.
Insurance woes have left many suppliers in the unenviable position of having to choose between supplying without cover - or turning down custom.
“Insurance could be the biggest problem facing the produce industry in the next five years,” says one trader. “There are good companies trading well with decent funds behind them, but if they are showing a small downturn, they are not being offered cover.
“This is not just in the UK - it is a worldwide problem. We have customers in France, Denmark and Germany who have had their rates reduced. Many of our big suppliers have had their credit reduced significantly, in many cases by more than half. We have had our credit on one of our Dutch clients reduced from €100,000 (£87,000) to €20,000 this year, and our cover on one of our big supermarket customer overseas has been reduced from €250,000 to €50,000. That puts firms like us in the position of having to decide if we will stop trading with that firm, or whether to continue trading with them and hope for the best. The issue cuts both ways, and some companies who had cover of €100,000 on us have now seen that come down to €30,000, for example.
“People are having to borrow money to pay the bills, customers are paying slower and that puts companies into cash-flow problems and means we are being pushed to the wall.”
Some produce insiders accuse the insurance firms of displaying a “knee-jerk reaction” to the recession. “Up until this year, we have always insured our debts, but this year there was a knee-jerk reaction from the insurance companies and they removed all our clients’ credit ratings - mainly to zero,” says one insider. “Then they asked for a 50 per cent increase on the premium for renewals. We decided there was no point insuring under these rates so decided to stop insuring at the start of the calendar year.
“Lots of companies are still trading well but struggling with cash flow - they therefore haven’t been able to get the money to cover new projects.”
But some sources feel there has been progress on the issue in recent weeks. “The 12 months to April and May were difficult, but in the last three months there has been a turnaround and we have taken a lot more orders for our services,” says an insider. “The insurers have realised that firms are not taking out cover for such high rates. So now they are offering slightly better rates. Insurance companies seem to be loosening their grip.”
The Fresh Produce Consortium (FPC) recommends Giles Insurance Brokers to its members as its preferred supplier of insurance. FPC chief executive Nigel Jenney recognises how vital it is for firms to be on the ball when it comes to their credit insurance schemes. He tells FPJ: “Insurance is often ignored in a busy trading environment, but it is essential that businesses have the correct type and level of cover in place to ensure they protect their people, their assets, their profit and their reputation.
“When the worst happens, companies don’t want to find out that for the sake of a modest premium, they haven’t covered the risk. For FPC members, Giles Insurance Brokers will conduct a free review of current business insurance and premiums to make sure you don’t have missing or outdated cover, and give impartial advice.”
Giles Insurance Brokers, established in 1967, provides for and arranges insurance for all aspects of a business.
Alex Reid, credit insurance director at Giles Insurance Brokers, says: “The credit insurance industry has a long experience of the perishable goods supply chain, and therefore an understanding of both buyer demands and seller requirements when formulating policies. Accordingly, appropriate clauses recognise everything from weighbridge invoicing to market pricing.
“Giles Insurance Brokers has yet to see any declining interest in credit insurance from insurers in respect of them wanting new and winning new business. Yes, insurers are under pressure to maintain or improve margins; however, they continue to have an underlying desire to underwrite most businesses. Since the economic crisis unfolded, premiums across the credit insurance sector have undoubtedly increased from this time last year - existing policyholders will testify this. Given rising insolvencies and therefore claims, insurers have understandably reassessed their exposure - premiums now reflect the cost of underwriting these risks in what looks to be an uncertain trading environment over the next few years.
“More pertinent is the cover available on both prospective and existing policyholders’ buyers. While the methods of assessment are unchanged, the provision of up-to-date information by buyers is now more important than ever, given what has happened over the last 12 months. Maximum filing times for statutory accounts, plus reduced information where smaller companies are concerned, can mean that information in the public domain does not show how that buyer is managing in current economic times. While underwriters will therefore actively seek additional information or visit firms to write the cover required, in the absence of this information, credit limits may be adversely affected - as a rule of thumb, the older the information, the less the use, and hence less the limit,” adds Reid.
In April, the government felt compelled to address the situation when it launched its Trade Credit Insurance Scheme, in a bid to officially restore trade credit insurance to those firms that have had theirs reduced.
The top-up scheme helps businesses with ‘whole turnover’ insurance - where the whole of a company’s order book is insured - by offering a separate policy that sits on top of an existing credit insurance policy. The policy, backed by the government, was initially due to last for six months and cover the lower of either the cover held previously, an equal amount of the cover now offered by a firm’s insurer, or £1 million. The minimum cover available was £20,000.
Three credit insurers - Atradius, Coface and Euler Hermes - are responsible for the scheme, which is designed to tackle the dramatic reduction in insurance cover against business customer non-payment and runs until the end of the year. At first, it extended to companies that had seen their policies reduced since the start of April. In June, this was backdated to cover withdrawn since October 2008.
Last week, after much campaigning from the business community, the government agreed to cut the price of the scheme and double the amount per company it is prepared to underwrite, as a result of weak take-up of the scheme - so far, just 52 companies have benefited from £7.1m of cover. Now, companies that apply for cover up until the end of December, just before the scheme’s withdrawal, will be covered until June 2010.
“The scheme was formally revised on August 20 to remove the lower limit criteria, increase cover to up to £2m and reduce cost from two per cent to one per cent for six months’ cover,” says Reid. “New applicants must apply by December 31, according to the government scheme - we do not know as yet what happens after this date.
“We have not heard of any our clients in the fresh produce sector using the top-up scheme, although for the right situation it may prove useful. We would always recommend discussing the reasons behind current limit reductions/cancellations with the insurer, and working with buyers wherever possible to explore additional cover.”
Most important of all is clear dialogue between produce firms and their insurers, so that all parties understand if and why cover has been reduced, insists Reid. “As a buyer, firms may have had cover reduced or withdrawn by insurers upon their company, in which case understanding the reasoning is paramount,” he says. “Opening a dialogue with the underwriters and sharing information, particularly management accounts, may resolve the problem - in the current climate, knowing how firms have fared over the last eight to 12 months and their capabilities going forward provides facts on which to positively underwrite.”
GILES DELIVERS FOR FPC
Giles Insurance Brokers tendered for the opportunity to become the preferred supplier of insurance services to the Fresh Produce Consortium (FPC).
“The FPC’s choice of supplier was influenced by the supplier’s/broker’s ability to best meet the needs of the members of the FPC,” explains account director Michael Mortimer. “Giles’ ability to provide best value for money via access to all necessary insurers, a focused marketing approach which drives the most competitive premiums, industry knowledge ensuring best premiums via the right insurers and the ability to gather risk information, which leads to driving down premiums, gave the FPC confidence that Giles could assist its members in controlling costs.
“Our sector experience with fresh produce companies and many associations and affinity groups gave the FPC further confidence that Giles would be able to meet the needs of its members.
“Finally, it is important to be able to deliver the service expected by FPC members. With a good geographical spread, Giles has 45 offices in the UK; the 1,100 Giles employees provide a very personal service to all manner of businesses, ranging from ‘ma and pa’ stores to multinationals,” says Mortimer.
“Ideally, insurance should be seen as the safety net to the risks that a business faces, bearing in mind that the widest insurance cover available will only cover some of the risks that a business will encounter. The day-to-day service of Giles is in the protection of companies via the advice and purchase of insurance. For those companies who wish to take a greater control of risk, Giles provides a menu of Plus Services, which, for example include Risk Management and Business Continuity Planning. These services are tailored to meet the exact needs of each individual business and will all assist in protecting the people, assets, reputation and profitability of a business.
“In the event of a claim, for example a fire over £10,000, our in-house team of qualified loss adjusters will not only assist in speeding up the settlement of the claim and setting you back on your ‘trading feet’ as soon as possible, but importantly we will also assist in ensuring you receive the full and correct level of payment from the insurers,” says Mortimer. “Following a major loss, the importance of this in-house capability and its success for Giles’ clients cannot be stressed enough.”
ARE YOU AT RISK FROM YOUR CUSTOMER?
In the UK, more than 80 per cent of all daily business-to-business transactions are on credit terms, says Alex McKenzie-Ross of Market4Sure, a brand of LRO Insurance Consultants, which is part of the Global Underwriters Group, with business interests in both the UK and South Africa. LRO offers this product in conjunction with global specialist Euler Hermes Insurance Company, the world’s largest credit insurer. When it comes to keeping the economy and cash flow moving, trade credit is twice as important as bank funding. Without the ability to trade on credit, most business simply would not happen. And the facts show that the better a business is at managing credit, the more successful it is.
Importantly, it’s a full-time job to minimise the risk of things going wrong - no small point when you consider that, at any time, the money owed by your customers is likely to be the largest asset risk on your balance sheet.
Protecting your business and helping your business to grow - whatever your size, whatever your industry, there is no challenge more important than that. It’s the challenge that we and our insurers thrive on. It’s the reason we exist. It is a startling fact that, if your business is anything like a typical one, your sales ledger probably accounts for around 40 per cent of your total value. If your UK or foreign customers don’t pay you, you will struggle. Worse, you may not even survive.
The facts are stark. According to the latest government figures, more than 13,000 businesses fail each year in the UK alone. And in many of those cases, the cause of failure was customers who either couldn’t or wouldn’t pay what they owed on time.
However, provided you take the right steps to protect yourself, none of this need be cause for concern. With our help, you can greatly reduce the risk of non-payment or late payment by your customers.
In the first place, we will give you time to act before things go wrong. If you are used to thinking of insurers as only getting involved after disaster strikes, the way we work may come as a pleasant surprise. Understanding the marketplace and analysing risk is at the core of what our insurers do, so there is not a lot going on in your sector - indeed, in any sector in any country - that passes them by. This means they will often be able to spot the signs that one of your customers is struggling before you. And where possible, they will share that insight with you straight away - giving you time to take any steps necessary to reduce your exposure.
As we have links with the UK and the world’s largest credit insurer, we really can offer you the ultimate in commercial protection. It doesn’t matter what industry you are in, or how big or small your business. We arrange cover for every size and type of organisation - from multinationals to sole traders. In certain circumstances, we will even arrange a bespoke policy to cover the specific risks peculiar to your particular sector.
As many thousands of UK policyholders can confirm, the hallmarks of our insurer’s service are fairness and clarity. All the policies are endorsed by the Plain Language Commission, so you won’t need a lawyer to tell you precisely what risks are covered. And if you do make a valid claim, you will find our insurers do everything they can to pay it quickly and in full. After all, we know how important cash flow is to business.
What’s more, they will go on supporting you after your claim has been paid. So if you suffer a bad debt arising from insolvency, they will assist you in your dealings with the insolvency practitioner.
Quite simply, our insurers have a stronger local presence and a stronger intelligence network across all areas of the world than any other insurer. And that means they can take a bolder, more positive approach to cover. So - unlike other insurers who may lack the local knowledge - our insurers won’t refuse cover in certain countries as a matter of course. Instead, they will judge each request for cover on its individual merits. And they will always do their best to say “yes”.
Sometimes, being part of the biggest player counts. As a partner with the largest credit insurer, together we can do more to look after your interests. When Allders collapsed in 2005, our partners were able to use their influence in negotiations with the official receiver on behalf of all the many policyholders who had been affected. Result? A far better settlement than the individual creditors could have won on their own.
You will find our insurers’ flexible, positive approach is also reflected in the details of our policies. Together, we can offer you not only comprehensive commercial cover; but, if you require it, we can provide wide-ranging political risk cover too. Together, we will strengthen and improve your credit systems.
Even for small businesses, credit control can be a big headache. That’s why online credit management is another key service we offer. As a policyholder, you will have access to EOLIS, a bespoke online information service. It’s designed to automate a number of otherwise time-consuming functions, thereby leaving your staff free to focus their energy where it matters most. In addition, you will be able to take advantage of CreditTracker - a new online tool designed to take sales ledger analysis, reporting to an even higher level.
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