According to the latest figures from the Australian Bureau of Statistics (ABS), insolvencies are up by nearly 40% compared to 2023. Across Australia, more than 9,000 companies have entered into administration this financial year. The figures could indicate that many months of inflation and rising costs are starting to show increasingly serious impacts on the economy and the insurance industry.
As the facilitators of cash flow to pay insurance premiums for brokers’ customers, premium funders have a close view of the state of the economy and its industry impacts.
“We were looking at the numbers for the last board report and it was about an 80% increase in the number of insolvencies in the last six months in our line book,” said Daniel Gronert (pictured above), CEO of Arteva Premium Funding. “It's certainly not doomsday by any stretch, but it is showing a deteriorating trend across the SME landscape.”
When Insurance Business spoke to Gronert one year ago, he said the construction industry, retail and hospitality were all hard hit by the economy and suffering the most insolvencies.
“It is absolutely still those same industries that are being affected,” he said. “Probably what we're starting to see now is the real impact of the pressure those industries are under.”
The CEO of the premium funder said there is one concerning novelty emerging from the statistics on their books. Across their broker distribution a relatively high number of mid-size SMEs are reaching out for funding for the first time.
“One interesting thing we have seen, which is a bit of a trend over the last six to 12 months, is the number of what we would consider mid-size businesses – so with policies in excess of $100,000 – who are looking to fund for the first time,” said Gronert.
He said, historically, these firms wouldn’t choose to premium fund.
“Some of these larger businesses are seeing the value of cash flow when economic times get tough,” said Gronert. “I think they're realizing that the economic situation, as you say, is quite bleak and they're watching their own growth numbers, particularly if they're exposed to any of those industries where economic growth is slowing considerably.”
He said one explanation for these firms seeking premium funding is their difficulty accessing capital.
“Access to capital through alternative means has slowed, or reduced considerably with interest rates increasing,” said Gronert.
In these situations, he said, demand for Arteva’s funding offerings does increase.
“The feedback we're getting from brokers is that their debtor books are increasing so we are seeing more and more clients delaying making their payments,” said Gronert. “Therefore, funding does become more of a priority for brokers to insure their debtor book can be brought under control.”
Gronert said from about August, the “uptick” in this economic pressure started to become clear on his firm’s books.
“It was only a marginal uptick, but an uptick all the same, in the number of payments that were being missed across those particular industries,” he said. “For us, we probably foresaw this economic pressure coming for some time so we were well prepared to deal with the challenges and particularly the administrative burden that comes with the additional missed payments and cancellations of policies and loans.”
The ABS statistics show that increasing numbers of construction firms are struggling – more than 2,500 have gone insolvent this financial year. This data suggests that many others could also be struggling to make their insurance coverage payments on time.
“We're having to manage this very closely and work with our brokers on that,” he said.
So far, Gronert said, his firm is “doing a really good job of managing the actual overdue debts and the amounts outstanding,” across the loan book.
“It's something we can't escape, unless we see a marked turnaround in the position of the RBA and we see rate cuts in the very near future, I think we'll continue to see this pressure for a sustained period,” he said.
IB asked which industry could be in the most trouble right now.
“Retail is probably the one that we're watching closely because that is jumping quite dramatically at the moment with retail sales at a low and possibly falling quite rapidly,” said Gronert. “That's something we are quite concerned about.”
KPMG’s recent Australia Retail Outlook 2024 described the pressures on local retailers as “a big squeeze.” Falling customer spending and rising costs were cited as two major challenges. The report’s authors expected retailers to have cash flow and working capital issues until 2025
According to the Australia Bureau of Statistics, the struggling economy grew a modest 0 .1% in April. ABS statistics also show that Gross Domestic Product (GDP) per capita has now fallen for five consecutive quarters.
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