Trade credit insurance will help you with insolvency protection

After a relatively quiet period since the last significant fluctuation more than ten years ago, economic development in the CEE region has been relatively stable. This changed significantly with the outbreak of the COVID-19 pandemic this year.

Concerns about a sharp economic downturn were quickly reflected in the situation in the credit insurance market. As insurers carry out a thorough review of customers, it quite often happens that, from the credit insurance company’s point of view, some customers find themselves in a situation where insurance coverage is no longer provided or is only provided to a limited extent.

In some Western European countries, the state offers various forms of guarantees to private credit insurers to ensure that coverage continues to be provided as much as possible. In the Czech Republic and other Central and Eastern European countries, despite the efforts of credit insurers, such an agreement with state authorities has not been reached, and the state only continues to provide aid through state organisations, such as ČMZRB, ČEB and EGAP in the Czech Republic.

An experienced broker is able to offer a solution

RENOMIA specialists and their partners in the region are available to their clients to respond flexibly to developments influenced by a number of often difficult to predict factors. If you are at risk of severe economic instability or even insolvency and you want to check the extent to which your existing credit insurance is prepared for this situation, or you are interested in taking out this insurance, we will be happy to take care of it.

The area of ​​risk prevention of outstanding receivables is also important. It is necessary to thoroughly check the business partner, preferably from several independent sources. The correct setting of the order process should not be underestimated either: for example, it should also be verified whether the person who sends the order (especially for new business opportunities) is really authorised to do so. In RENOMIA’s practice, we have encountered cases where the following orders were sent from a domain that was very similar to the original one to which the client was accustomed, differing by only one letter. If we had not detected that situation in time, the client would have been in trouble not only with the payment of the delivery, but also with the possible liquidation of the insured event with the credit insurer.

The performance of global economies will fall, the eurozone will experience a really sharp decline and thousands of companies will be in imminent danger

According to credit insurers’ studies, global GDP is expected to decline by about 4.2% in 2021. This is a significant change compared to an increase of 2.4% last year. The eurozone will be even more affected, as a decline of around 7.3% is expected. The estimate for the Central and Eastern European countries corresponds to the aforementioned global average.

Year-on-year increase in insolvencies in 2020
Country risk map

Source: Atradius and Euler Hermes 

The most affected sectors are services, but also sectors such as the automotive industry, where the year-on-year decline in turnover is relatively significant.

With regard to the development of insolvencies, a relatively significant increase is expected, especially after the end of state support measures to eliminate the consequences of the COVID-19 pandemic (see chart above). RENOMIA and its partners in the region are ready to advise and help clients.

Hynek Rasocha
Director, RENOMIA Trade Credit