Re/insurance broker Aon believes that businesses are increasingly turning to credit insurance solutions as a way to manage uncertainty in an increasingly volatile economic, political and consumer environment.
As part of a new report, the firm noted that the credit market has seen steady growth in recent years, with covered receivables exposures now exceeding €3.0 trillion, according to the ICISA.
From the unpredictability of the US-China trade tensions to the impact of Brexit, businesses are contending with an ever more uncertain macro-economic environment, analysts noted.
In addition, changing purchasing behaviour and increasing consumer expectations are also adding to uncertainty and corporate vulnerability, while digital transformation and new entrants are disrupting consumer-facing market.
Businesses are having to both manage this uncertainty and invest in new sources of growth, exploring new markets, geographies and customer segments, which is putting increased pressure on balance sheets at a time when banks are reducing their exposures to corporate credit and looking to de-risk their own balance sheets.
But by insuring the credit risks posed by their clients’ yet-to-be-settled invoices and payment obligations, insurers can make it easier for banks to lend, Aon said.
The broker estimates that the notional amount of credit insurance covering outstanding bank exposures is continuously growing and is in excess of $300 billion.
However, there is still significant scope for further uptake and awareness of the solutions the credit insurance and surety market can provide, as only an estimated 20% of Chief Financial Officers (CFOs) are making use of the full range of solutions available.
Also further suggested that new innovations, data and analytics and AI within the insurance sector could enable clients to better model exposures, optimise working capital and understand credit risk.
“Today, business leaders are being faced with ever more uncertainty as they look to navigate through highly volatile economic and political environments,” said Stuart Lawson, Chief Executive Officer EMEA, Credit Solutions at Aon.
“Against this backdrop, businesses are under increased pressure to both free up capital and manage supply chain risk,” he continued.
“Credit insurance should be viewed as a critical tool in achieving these goals, enabling businesses to more effectively use the credit and capital markets to underpin their strategic ambitions – and enable sustainable growth.”