Credit insurance solutions stepping in as volatility bites: Aon
Credit insurance market is playing an increasingly critical role in helping businesses deliver continued growth amid rising global uncertainty, finds a new report by re/insurance broker Aon.
The report, “Driving growth through uncertain times: The hidden gemstones”, examines the increased volatility facing the C-suite today, especially for those businesses looking to expand through international trade.
From the unpredictability of the US / China trade tensions to the impact of Brexit, businesses are contending with an ever more uncertain macro-economic environment. In addition, changing purchasing behaviour and increasing consumer expectations are also adding to uncertainty and corporate vulnerability while digital transformation and new entrants are disrupting consumer-facing market.
Aon said that businesses, therefore, are having to both manage this uncertainty and invest in new sources of growth, exploring new markets, geographies and customer segments. This is putting increased pressure on balance sheets at a time when banks are reducing their exposures to corporate credit and looking to de-risk their own balance sheets.
“Today, business leaders are being faced with ever more uncertainty as they look to navigate through highly volatile economic and political environments," said Stuart Lawson, CEO EMEA, credit solutions, Aon. "Against this backdrop, businesses are under increased pressure to both free up capital and manage supply chain risk. Credit insurance should be viewed as a critical tool in achieving these goals, enabling businesses to more effectively use the credit and capital markets to underpin their strategic ambitions – and enable sustainable growth.”
Meanwhile, the report also looks at the importance of credit insurance as a financing tool, especially in the context of banks constraints to extend credit. By insuring the credit risks posed by their clients’ yet-to-be-settled invoices and payment obligations, insurers make it easier for banks to lend.
Credit insurance is now a critical tool for many banks in managing their own risk exposures, and based on recognised market intelligence, Aon estimates that the notional amount of credit insurance covering outstanding bank exposures is continuously growing and is in excess of $300 billion.
However, despite this, there is still significant scope for further uptake and awareness of the solutions the credit insurance and surety market can provide. Aon estimates as few as 20 percent of CFOs are making use of the full range of solutions available.
Furthermore, the report finds that new innovations, data and analytics and AI within the insurance sector are giving clients access to predictive insights allowing them to better model exposures, optimise working capital and understand the credit risk posed by key customers and markets.
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