Trade Credit Insurance - History

History

Trade credit insurance was born at the end of nineteenth century, but it was mostly developed in Western Europe between the First and Second World Wars. Several companies were founded in many countries; some of them also managed the political risks of export on behalf of their state.

Following the privatisation of the short-term side of the UK's Export Credits Guarantee Department in 1991, a concentration of the trade credit insurance market took place and three groups now account for over 85% of the global credit insurance market. These main players focused on Western Europe, but rapidly expanded towards Eastern Europe, Asia and the Americas:

• Euler Hermes, merger of the two credit insurance companies of the Allianz Group. Euler Hermes is the world's number one credit insurance provider.
• Atradius, a merger between NCM and Gerling Kreditversicherung. Later renamed Atradius after it was demerged from the Gerling insurance group.
• Coface. Formerly a French government sponsored institution established in 1946, this company is now part of the Natixis group.

Many variations of trade credit insurance have evolved ranging from coverage that can be canceled or reduced at an insurers discretion, to coverage that cannot be canceled or reduced by the insurer during the policy period. Other programs may allow the policy holder to act as the underwriter.

While trade credit insurance is often mostly known for protecting foreign or export accounts receivable, there has always been a large segment of the market that uses Trade Credit Insurance for domestic accounts receivable protection as well. Domestic trade credit insurance provides companies with the protection they need as their customer base consolidates creating larger receivables to fewer customers. This further creates a larger exposure and greater risk if a customer does not pay their accounts. The addition of new insurers in this area have increased the availability of domestic cover for companies.

Many businesses found that their insurers withdrew trade credit insurance during the late-2000s financial crisis, foreseeing large losses if they continued to underwrite sales to failing businesses. This led to accusations that the insurers were deepening and prolonging the recession, as businesses could not afford the risk of making sales without the insurance, and therefore contracted in size or had to close. Insurers countered these criticisms by claiming that they were not the cause of the crisis, but were responding to economic reality and ringing the alarm bells.

In 2009, the UK government set up a short-term £5 billion Trade Credit Top-up emergency fund. However, this was considered a failure, as the take-up was very low.