p20 pink nov7 4/11/08 19:09 Page 20
City & finance
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Credit insurers
What is credit insurance?
Credit insurance protects suppliers in the event
an agency fails to pay for products purchased.
tighten their grip
Euler Hermes uses the analogy of a lift.
A manufacturer might guarantee the lift will
work 98% of the time, or be repaired within
24 hours. A lift insurer is responsible for
on risky business
regularly inspecting the lift in order to assess
the risk for those that are using it.
It might be the inspector recommends
clients stop using the lift. Instead, they will
T
ravel agencies will have a tougher time
Following Euler Hermes’ move
have to use the stairs.
securing and maintaining credit in the Credit insurers do not guarantee companies
coming year, as insurers look to min-
to pull credit insurance cover
that they will be able to trade indefinitely on
imise their risk during the downturn.
on Stella Travel Services (UK),
credit terms with their clients.
This symptom of the wider credit squeeze is
Tricia Holly-Davis looks at
When a company grants credit to its clients,
more of a concern for mid-sized companies with
the possible implications
it is effectively acting as a banker for this client.
annual turnover of up to £25m than for larger
firms such as Thomas Cook and Tui Travel, whose
of the drying up of credit
In the same way that banks are no longer
offering credit in the same terms as they did a
balance sheets and liquidity are strong.
for the travel industry
few months ago, Euler says its clients should
Credit insurance giant Euler Hermes told TTG not be blindly offering credit to their clients,
coverage limits may be reduced, or removed for without greater understanding of the
a variety of reasons, including deterioration in increased risk.
financial performance and payment records. Credit insurers have a responsibility to
Other problems, such as a county court inform suppliers if the risk of
judgment, regardless of how small the amount, trading with a business has
are likely to be immediate grounds for suspen- changed. Alternative strategies
sion of coverage, according to Ian Bird of Hollard might be advised.
Risk Assessors.
“The first sign of anything negative, even
just rumours, could make insurers nervous much bigger than they were a few
and see them pulling and/or limiting cover- months ago. “As the financial crisis
age and increasing premiums,” he said. spreads into the real economy, we
A bigger worry for the travel industry believe this will continue for some
is that insurers’ decisions to limit and time,” said a spokesman.
pull coverage could precipitate a failure But it’s not just credit insurance com-
if it causes suppliers to stop trading with panies that are twitchy. Bond issuers also
a company. worry the full impact of the credit crunch
This is what Jonathan Hinkles, former UK has yet to unfold, according to Imtiaz Longi,
boss of Zoom Airlines, claimed after IPP made managing director of Longi Associates.
it public it had pulled He said insurers had recently started plac-
scheduled airline ing stricter terms and higher rates on start-ups
failure insurance, as and companies renewing their Atols.
Zoom was battling Established companies are being charged
to agree a recue deal. 4-5% of the value of an Atol bond, compared
“It’s like a self-fulfilling prophecy. There is with 2-2.5% a year ago, he says.
a danger of panic setting in, similar to what In addition, Longi says merchant facility
happened in the banking industry,” says Bird. bonds, which protect credit card pay-
Chris Photi of White Hart Associates agreed: ments, have all but dried up, while credit
“This could just be the tip of the iceberg and card firms are now delaying payments to
cause a kneejerk reaction from suppliers and agencies by up to 21 days after a purchase.
other insurers.” Photi warned: “There’s just no such thing as
Euler Hermes admits the risks today are a good risk anymore. Today, everyone is a risk.”
20 07.11.2008
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