Last week, Euler Hermes, one of the world’s biggest trade insurers announced that the global lock down could result in a 20-25% increase in insolvencies. This week Morgan Stanley predicted that trade credit losses could hit $46 billion, with European insurers being hit particularly hard.
Yes, it is possible that credit insurer losses could be high this year and next, but it is important to remember two things. First, this is their business and why exporters purchase credit insurance in the first place – they harvest premiums throughout the contract and reserve those funds [in the good times] for the times it is needed, e.g. black swan events like COVID-19. Secondly, there is a correlation between credit insurance payouts and insolvencies, and in this crisis, it is hard to predict which companies (your buyers) will survive and fail this year and next. So, it is very important to pay particular attention to this type of export protection against your goods.
This will not be the last crisis global trade will endure and being better prepared for the impacts of this crisis and in preparation for the next, should be in every exporter’s crisis management planning.