Uncertain Brexit Outcome Increases Trade Credit Insurance

The UK economy is reeling from the catastrophic decision to withdraw from the European Union (EU), which stomp consumer spending and led to the devaluation of the pound. Such a disastrous decision led some famous companies to throw in the towel. Moreover, the UK bankruptcies rose to the stratosphere in the last five years.

The situation increases consideration in trade credit insurance. Companies trying to protect their business from the risk of payment default or delay from customers buy trade credit insurance. A managing director of a large insurance firm noticed the very high demand for credit insurance. The director surmised that the Brexit made business people anxious. In 2018, the association of insurance brokers reported a double-digit percentage demand for trade credit insurance. With the outlook of Britain might fail to attain in time the negotiated agreement, no-deal Brexit, cause the increased interest. Most EU exporters bought or started inquiring about the credit insurance aside from the UK buyers.

The uncertain outcome for the Brexit negotiations shortened the credit periods for businesses across the channel. Most companies in the EU demanded a quicker payment of credits. Noticeably, it was during the 2008 financial crisis that a similar increase in credit insurance increase. Last 2017 a glimpse of what is in store for 2018 was the 60 percent increase on credit insurance claims.

Not only the environment of uncertainty to the outcome of the Brexit that increase demand for credit insurance but also the double-digit price increase in retail, which was not helped by the depreciation of the pound, causing an increase in the prices of imports. The rise in the popularity of online shopping and food delivery contributed to the distress in the UK retail industry.

The retail is not the only industry feeling the crisis in business. The Brexit, regardless of its outcome, raises concern in agriculture, which likely will result in the elimination of farming subsidies UK farmers enjoyed as a member of the EU. Although British politicians expressed to restore them is a promise etched in water. Aside from retail and agriculture, businesses such as logistics, auto, food processing are equally affected.

In the worst-case scenario, the Brexit will likely break the supply-chain, increasing the risk of more bankruptcies between 15 and 40 percent, according to macroeconomic experts higher than 8 percent compared to the global average.

Small business recognizes the rising risk but finds it challenging to purchase trade credit insurance due to the cost. SMEs often need to secure the entire order book. The lack of insurance stunned the growth of small businesses that protect invoices against payment default. Consequently, SMEs in the UK refused to accommodate new business due to uncertain credit quality.