Global insolvencies are set to reach a 15-year peak in the current year, highlighting significant challenges across various sectors, including the food and beverage (F&B) industry. Despite these hurdles, trade credit insurers find the F&B sector particularly appealing, especially in segments where businesses can transfer inflation, interest rate hikes, and energy price volatility costs to consumers.
According to Allianz Trade, insolvencies surged by 30% across major economies such as the US, Canada, France, and Japan. This trend is projected to persist, with a forecasted 10% increase in 2024, marking the highest level in 15 years and continuing a four-year trend of escalating business insolvencies. Trade credit insurance plays a pivotal role in mitigating these financial risks, emphasized WTW in their report titled “The critical role of trade credit insurance in the food and drink sector.”
However, challenges related to capacity are emerging, particularly in heavily insured segments like wholesalers and grocers, as cautioned by WTW. In response, insurance policies are evolving to include non-cancellable credit limits and greater flexibility for policyholders. There is also a growing trend among top-up providers to extend coverage for existing policies with higher limits.
Furthermore, trade credit insurance is increasingly viewed as a strategic tool for business growth, enabling enterprises to gain a competitive advantage by expanding into new markets and sectors with reduced financial risk, as noted in the WTW report. It also supports supply chain finance initiatives by offering early settlement options based on the financial strength of purchasers.
In the food sector specifically, trade credit insurance is indispensable for managing credit risk and ensuring financial stability. It helps mitigate potential losses from customer insolvency or non-payment and facilitates informed credit decision-making. For businesses operating internationally, it provides protection against losses in unfamiliar markets and bolsters financing activities.
WTW further highlighted that trade credit insurance enhances sales and capacity management by empowering businesses to extend credit to new customers and pursue larger sales volumes while safeguarding against increased risk exposure. Additionally, the flexibility to adjust credit limits or obtain supplementary coverage aids in capturing growth opportunities and expanding market share.
Moreover, trade credit insurance policies often include collection services that assist in recovering outstanding debts before resorting to claims, underscoring its comprehensive utility in financial risk management.
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