The COVID-19 pandemic (also referred to as coronavirus disease 2019, 2019 novel coronavirus, and 2019-nCoV) has turned the world sideways -- or at least it may feel that way. However, this pandemic is not the first time trade credit insurance has seen chaos and uncertainty in the world.
Trade credit insurance has been around for over 100 years. While it existed in the late 1800s, it gained popularity in the early 1900s due to World War I and World War II and helped countries rebuild their economies, encouraging growth in exports. At the time, global finance was based on the gold standard, but the central banks who kept the gold standard operational were usually private entities. Generally, this worked out okay but presented a conflict in times of crisis. Was it the responsibility of these banks to protect the gold standard? Or should these banks provide emergency liquidity?
Borrowing became the main method of financing these wars. While there are multiple dimensions as to what happened next that will not be covered here, it soon became apparent that political risk could determine whether or not you were able to get paid by your customer. This led to multiple insurance companies being founded in different countries to help companies manage the risk of financing with trade credit insurance.
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Through the years, trade credit insurance has kept its reputation as a commonly recognized way to protect foreign or export accounts receivable. However, a large segment of the trade credit insurance industry protects domestic accounts as well. Now, trade credit insurance, also known as business credit insurance or accounts receivable insurance, has become known simply as a valuable risk management tool -- even in times of peace.
The value of trade credit insurance is not limited to protection from political risk. In the midst of the COVID-19 pandemic, business insolvency is expected to rise. Trade credit insurance, at its core, helps businesses recover debts that are not able to be paid due to insolvency.
Trade credit insurance can be a valuable tool for your company if you can answer yes to any of the following questions:
Luckily, it is still possible in some cases to get trade credit insurance coverage during the pandemic. However, it is more important than ever to work with a good broker who can guide you through this ever-changing landscape. Because of the pandemic and the prediction that insolvency will increase, it may be more difficult to get coverage in certain industries or certain countries. Approved credit limits for your customers may be lower or the percentage of coverage may decrease. However, in some instances, governments may back trade credit insurance companies as a way to protect their economies in this difficult time.
We can connect you with a broker who can discuss your specific situation and help you determine what coverage is available.
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