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Survey Report

Insurance Marketplace Realities 2020 Spring update – Trade credit

Credit, Political Risk and Terrorism
COVID 19 Coronavirus

May 7, 2020

The sudden economic contraction due to COVID-19 reminds us that trade credit insurance is a strategic buy.
Rate predictions
  Trend Range
Trade credit Increase (purple triangle pointing up) +10%, higher for some sectors

Key takeaway

The sudden economic contraction due to COVID-19 reminds us that trade credit insurance is a strategic buy, as having a trade credit policy in place now will provide an oasis to insureds who procured the protection in better economic times.

The COVID-19 outbreak has caused a historic economic downturn with significant trade credit repercussions.

  • Supply chain disruptions may lead to missed deliveries, lower sales and lower net profits globally.
  • Supply chain finance may also be impacted. On extended term programs, distributors cannot turn their products into cash given the break in the cash conversion cycle; this may raise the number of past-due payments. Banks, sellers and carriers will need to work together to provide relief in these cases.
  • Disaster recovery experts may need to focus on spreading supply chain manufacturers into more than one country, as the COVID-19 crisis has exposed geographic supply chain vulnerabilities. We see Vietnam, Taiwan and India absorbing much of the shift.
  • Carriers have de-risked over the last 12 months, which should help prepare them for the current economic slowdown/recession.
  • Insurance carriers may further de-risk on the weaker credits in the most impacted industry sectors. The carriers are reacting in a much more measured manner than they did in 2008.
  • Rates have hardened over the past two months, and we expect continued upward rate pressure given the current global crisis.

Banks and credit insurers are working jointly on a streamlined policy template.

  • The financial institutions market has recognized the need for a single policy template, which would be available for use across the markets for the purpose of obtaining capital relief in accordance with local banking regulations.
  • Banks and insurance carriers have been working together on this since 2018, and when the work comes to fruition, the expected result is lower overall cost to the insured and expedited deal closings.

Disclaimer

Each applicable policy of insurance must be reviewed to determine the extent, if any, of coverage for COVID-19. Coverage may vary depending on the jurisdiction and circumstances. For global client programs it is critical to consider all local operations and how policies may or may not include COVID-19 coverage. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal and/or other professional advisors. Some of the information in this publication may be compiled by third party sources we consider to be reliable, however we do not guarantee and are not responsible for the accuracy of such information. We assume no duty in contract, tort, or otherwise in connection with this publication and expressly disclaim, to the fullest extent permitted by law, any liability in connection with this publication. Willis Towers Watson offers insurance-related services through its appropriately licensed entities in each jurisdiction in which it operates. COVID-19 is a rapidly evolving situation and changes are occurring frequently. Willis Towers Watson does not undertake to update the information included herein after the date of publication. Accordingly, readers should be aware that certain content may have changed since the date of this publication. Please reach out to the author or your Willis Towers Watson contact for more information.

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