Credit Insurance Today 2013

The expanison of the Market.

The trade credit insurance market is expanding rapidly. The main market players are the large international companies opening subsidiaries in Russia, such as Euler Hermes, ONDD, Coface and Atradius. They are bringing Western trade credit insurance and sales technology to the domestic Russian market. There is no official market size data but we estimate it to be $80-100m per annum in terms of GPW. The highest penetration of trade credit insurance is in consumer electronics and the pharmaceutical industry where over 90 percent of the sales are covered. Trade credit is also gaining popularity in the other industry sectors like finishing materials, food and beverages, detergents, and tyres. Russian companies usually prefer to sell on pre-payment terms or rely on well established relationships with their clients rather than on TC insurance.

The effects of the downturn.

We have not recognised a significant downturn on the trade credit insurance market reputation resulting from the 2007-2008 financial crisis. Even though many limits were cancelled rapidly, a substantial amount of losses was reimbursed. The trade credit  insurers were hard hit in 2008, and this forced them to be more aggressive in sales, simultaneously improving control over the buyers’ financial performance and credit limits granted so far. The market is now fully recovered and pricing levels are about the same as in 2007 or slightly softer – the average deductible level is 10 percent each and every loss now compared to 15 percent in 2007.

Russia

There have been no serious developments in Russian insurance legislation in the past four to five years. Tax issues are the most serious concern for trade credit insurance buyers as trade creditpremiums are not tax-deductible under the current tax laws of Russia. Important decisions in respect of claims practice have been taken recently by the Supreme Arbitration Court which ruled that any unintentional error or omission or act of the insured shall not relieve the insurer from liability.

Changes

Insurers became more flexible in terms of policy wording but are strict in terms of deposit premium charge and terms of premium payment. More information and transparency is required concerning relationships with debtors, debtors’ group structures and ownership. Insurers want to know any information that directly or indirectly influences the evaluation of the risk. Government-related debtors are still out of coverage and are not welcomed unless they are a small part of a big credit portfolio. Insurers have started to provide new products for the Russian market – for example, top-ups or discretionary limits. Sometimes insurers can provide a 10-day grace period before the credit limit cancellation date. Also, insurance companies are gaining an appetite for new industries that were regarded as uninsurable a couple years ago, such as tyres or construction machinery.

Need

Being a powerful tool of sales, trade credit insurance certainly provides more comfort and security to the sellers. Taking into account that Western insurers are outnumbered on the Russian trade credit insurance market, one would suggest that multinational companies feel better with a trade credit policy in place, particularly in cases where the coverage is provided by one global insurer both in Russia and abroad.

Availability

 The availability of trade credit products strongly depends on the industry sector and credit sales volume. Insurers prefer to deal with traditional FMCG and sectors where trade credit insurance penetration is traditionally high. The minimum annual sales volume threshold is $5m. Pre-shipment risks and single long-standing projects are out of scope unless in exceptional cases. Each insurer has its own policy wording, but it can be individually tailored in favour of the client. Experienced brokers can improve the policy wording in all cases.

Sole Proprietors

 It is very hard to estimate the creditworthiness of sole proprietorships and some LLCs, especially in industries such as agriculture or light industry – for instance, clothing. Sometimes there are serious problems with providing credit limits, especially in cases where debtors refuse to provide financial statements or any additional information.

 

 

 

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