FinCred have provided a summary of the impact Covid-19 is having on the credit insurance market and the response from insurers during these difficult trading conditions.

Due to the global supply chain shock and subsequent demand shock, businesses across a huge range of sectors are seeing a slowdown in payments from customers for goods or services and intensifying credit risks and putting financial pressure on businesses.

Most trade credit insurance policies provide comprehensive credit coverage which covers policyholders for the non-payment of accounts receivables subject to express exclusions. Policyholders are expected to exercise due care and diligence, if a loss is foreseeable then they should not continue to make shipments. As long as the exclusions are not breached, and an approved credit limit is in place then a claim for losses relating to Covid-19 should be valid.

Insurers have recognised these trading challenges and to assist insureds during this time many insurers have relaxed the policy terms around reporting overdue customers to allow policyholders greater flexibility to manage these payment delays.

Amendments to Policy Terms

As of 20th April 2020, insurers have communicated the following approach to take effect for a limited period:

  • Atradius
    • For receivables with a maximum extension period expiry before 1st September 2020 the insured’s obligation to notify Atradius of an overdue amount and/or the obligation to transfer to Collections 30 days after the expiry of the maximum extension period (MEP) is extended to 60 days after the expiry of the MEP. The insured may, without prior approval, agree a later payment date for a receivable (even after the expiry of the MEP) provided that the amended payment terms remain within 60 days after the expiry of the MEP.
    • The original due date of payment shall remain the date relevant for the application of all other terms and conditions of the policy, such as in particular the Maximum Extension Period, Automatic Stoppage of Cover or Date of Loss.
  • Coface
    • The client’s policy already permits extended payment terms – The Maximum Credit Period (MCP) provides the flexibility to extend due dates without the need for Coface intervention. For periods foreseen beyond the MCP, the client has the option to apply for an Extended Due Date (EDD) ensuring this is applied before the expiry of the MCP. An underwriter will evaluate each request and will accommodate as far as is reasonable.
  • Euler Hermes
    • Applicable to all short-term trade credit insurance customers except financing clients for debts due from Insured Buyers up to and including £450,000 or €500,000 (or equivalent in the current of the invoices) with payment due dates up to and including 31 May 2020:
      • Extension to overdue reporting and debt placement periods: Euler Hermes will extend to 60 days the period in their policy to report an overdue account and place it with us for collection. This period begins from the expiry of the Maximum Extension Period. Note that the Protracted Default Period will then commence on the date the overdue is reported and placed for collection
      • Flexibility to agree postponed due dates: if required, insureds may agree with their Insured Buyer a postponement of the due date to a date within this period of 60 days from the expiry of the Maximum Extension Period.
    • For the avoidance of doubt, these amendments do not constitute a delay to the expiry of the Maximum Extension Period and further supplies made after that time will not be covered, as per their policy terms and conditions.
    • Reporting an Insured Buyer’s “cash-flow difficulties” due to Covid-19: in normal circumstances the admission by an Insured Buyer of financial difficulties would be reportable immediately under the policy. In these exceptional times, Euler Hermes have agreed that insured’s will be able to use the flexibility above and they will not need to report this to Euler Hermes and place the account for collection until 60 days after the end of the Maximum Extension Period (MEP)
    • Reporting Adverse Events: Euler Hermes will extend to 60 days the period in the policy to report an Adverse Event (known as a State of Default in certain policy wordings) and place it with us for collections. This period begins from the occurrence of the relevant event. This extension does not apply to insolvency or political risks events. For the avoidance of doubt, no further supplies are covered from the date they were aware, or should have been aware of the Adverse Event. If the payment is made within the reporting period, please not that the debt still needs to be reported.
    • To provide cash flow support to insureds with turnover ≤£22.5m, the following measures are extended to SME customers:
      • Premium/Service fee payments: cover under the Euler Hermes policy will not be impacted if they are unable to pay premium or service fee invoices due to Euler Hermes because of disruptions created by Covid-19.
      • Turnover declarations: cover under the Euler Hermes policy will not be impacted if they are unable to declare their turnover as required under their policy terms and conditions because of disruptions created by Covid-19. For turnover declarations which are due to be submitted to Euler Hermes by 30 April, a further 30 days will be allowed to 31 May
  • Nexus Trade Credit
    • The following Policy changes shall apply to all Insured Customers in respect of any debt below £100,000 that is currently not overdue beyond the Maximum Extension Period (MEP):
    • Extensions of Due Date (3.1) – clients may extend the original due date by up to 60 days beyond the expiry of the MEP without approval from its underwriter.
    • Further Business (3.1) – for the avoidance of doubt, the MEP remains as specified in the Policy Schedule. Therefore further deliveries to the Insured Customer must not be made after the expiry of the MEP even where the due date has been extended beyond the MEP (unless the unpaid amount is the subject of a valid dispute).
    • Any extension to a due date for a period longer than 60 days beyond the original MEP with require written agreement from an underwriter.
    • Notification of Payments (3.4) – the period within which clients must advise us of an overdue debt is extended to 60 days beyond expiry of the MEP.
    • Clients do not need Nexus’ approval for repayment plans where the debt will be paid within 60 days beyond expiry of the MEP.
    • All other terms and conditions of the Policy continue to apply
  • QBE
    • QBE is extending the notice period where you must notify us of a breach of the MEP or an adverse notifiable event by an additional 60 days.
    • Without seeking QBE’s prior agreement, customers can agree a later payment of a receivable that is not greater than £100,000, if the later payment of the receivable is within the new extended period to notify us.
    • For any repayment plan that is below £100,000, QBE does not require our customers to ask for our prior approval to accept, provided the maximum period for a repayment period is no more than 6 months. For the avoidance of doubt, for any repayment plans above £100,000 and / or exceeding a six-month period, this will still require QBE’s approval.
    • QBE are increasing the Overdue Reporting Limit to £50,000 immediately.
    • Clients to pursue their debts but from immediate effect QBE do not expect clients to pursue legal action and force clients into insolvency during this time.
    • Where QBE have cancelled or reduced a limit so there is no availability of cover to make further deliveries and the account is within policy terms, the Insured may make further deliveries on their own account and in relation to monies received for these deliveries, we will allow a salvage waiver up to £50,000, without the need for clients to seek prior approval from QBE.
    • Until further notice, QBE agree that all Insureds with Pre-Shipment cover already endorsed to their policy can continue to supply goods to a Buyer on whom they have withdrawn cover, without seeking prior approval from QBE, up to a value of £150,000. For the avoidance of doubt, this is in relation only to goods already ordered or finished for delivery within the timeframe set out in The Insured’s Pre-Shipment endorsement.
    • QBE are rescinding our previous comments about Binding Contract Cover no longer being endorsed to their policies but instead Insureds are reminded of their obligations under the Policy and to act as a prudent uninsured at all times.
    • All other terms and conditions of the policy remain fully in place.
  • Tokio Marine HCC
    • Tokio Marine HCC are keen to ensure that payments continue to flow through the supply chain in the best possible way. They do not think it is appropriate to agree across the board extensions in payment terms or On Stop periods. However, they do believe some tolerance is required and therefore with immediate effect:
      • On all Trade policies, the Reporting Period is extended from 30 days to 60 days. That means you do not need to tell Tokio Marine HCC that a customer has not paid until 60 days after the end of the On Stop Period. Tokio Marine HCC do not cover debts incurred after On Stop and if you need to trade beyond On Stop please ask for specific written agreement
      • On all Constructor policies, the Reporting Period is extended from 7 days to 60 days. This means you do no t need to tell Tokio Marine HCC that a payment has not been made until after the Suspension Period.
    • Payment of premium: Tokio Marine HCC have put in place two alternatives for customers who are finding themselves in serious financial difficulties due to Covid-19. The two alternatives are a temporary suspension of the policy or deferment of part of the premium instalments for a short period.

Credit Limit Action

When the Covid-19 crisis was still developing and emerging most insurers were taking a practical approach to credit limit coverage by closely monitoring the developments. Now this has developed into a global supply chain and subsequent demand crisis insurers are now actively monitoring and assessing their risk portfolios to manage their exposure. Similar to the policy advice the approach that each insurer is taking has differed.

Sectors that are viewed as particularly high risk to the crisis are seeing more extensive withdrawals and reductions in cover. These sectors include; airlines, hospitality, casual dining and retail sectors, with some insurers identifying transport and automotive as a high risk sector.

The aggressiveness and extent of credit limit reductions or withdrawals across other sectors in response to reducing trade has varied depending on the insurer. Some insurers are simply issuing blanket reductions in cover and withdrawals in specific sectors, others are taking a demand-led approach where they are asking policyholders for their current and ongoing requirement for cover with certain buyers. Generally, if there is an ongoing requirement for cover, the buyer is financially stable and policyholders can prove that they have ongoing orders then withdrawals and reductions in cover have been successfully appealed with some insurers. Where it is proving more difficult to appeal reductions is where a buyer is in one of these high risk sectors or where a buyer had liquidity issues prior to the crisis and where these buyers are not trading with staff furloughed.

Insurers are still open for new policies and companies seeking credit insurance cover. The risk environment is challenging, but enquiries will continue to be reviewed on a case by case basis.

If you are currently insured for credit insurance risks and have any questions about how these policy changes impact your business or you wish to enquire about cover then please contact Hannah Lyon-Wall at FinCred on or 01732 749754.