Trade credit insurance supports F&B's financial stability

Global insolvencies are expected to make a 15-year high this year.

Amidst challenges, the food and beverage (F&B) industry remains attractive to trade credit insurers, most specifically in segments where businesses can pass on costs of inflation, higher interest rates, and energy price volatility to customers.

“This trend is expected to continue, with a predicted 10% increase in 2024, marking a 15-year high and the fourth consecutive year of increased business insolvencies. This situation underscores the critical role of trade credit insurance in managing financial risks,” WTW said in their “The critical role of trade credit insurance in the food and drink sector” insight.

However, capacity issues are emerging in heavily insured segments like wholesalers and grocers, WTW warned.

Policies are adapting, with non-cancellable credit limits and greater policyholder discretion becoming popular. Top-up providers extending coverage for existing policies are also on the rise, offering higher limits.

“Moreover, the strategic use of trade credit insurance as a growth tool is becoming increasingly recognized. Businesses are leveraging this insurance to gain a competitive edge, allowing them to expand into new markets and sectors with reduced financial risk,” the WTW report added.

 It also supports supply chain finance programs by offering early settlement options based on the purchaser's financial strength.

In the food sector, trade credit insurance is vital for managing credit risk and ensuring financial stability. It mitigates potential losses from customer insolvency or non-payment and aids in credit decision-making. 

For businesses dealing with international customers, it protects against losses in unfamiliar markets and supports financing activities.

“The ability of trade credit insurance to increase sales and manage capacity is another significant benefit. It provides businesses the confidence to extend credit to new customers and pursue larger sales volumes without compromising their risk exposure,” WTW said. “Additionally, the flexibility to adjust credit limits or obtain additional coverage supports businesses in capturing growth opportunities and expanding their market share.”

Collection services included in policies aid in recovering outstanding debts before filing a claim.