The NCI Trade Credit Risk Index has found that claims activity for the first half of 2016 was up 62% when compared with 2015 as the market continues to be impacted.
The index found that collections by value in the first half of the year are also up 58%, when compared with the first half of 2015, and Kirk Cheesman, managing director of MCI, told Insurance Business that a slowdown in China has hit the region.
“The slowdown in China last year has flowed quickly down the food chain,” Cheesman said.
“Higher insolvency rates occurred last year in north Asia and the New Zealand building sector has had a couple of large hits this year. As expected, regions which heavily relied on the mining industry in Australia, such as Western Australia and North Queensland are experiencing difficulties.”
Cheesman noted that “there are ‘pockets’ of difficulties in the market at the moment. Both in regions and industries,” but noted that market could pick up.
“Lower trade activity in housing, construction, mining have all had an impact on the increase in the volume of claims. On a positive note however, we have experienced more clients anticipating growth over the next year in comparison to the last 2 years,” Cheesman continued.
Increased claims numbers have various causes, Cheesman explained, as margins continue to shrink.
“Less market activity, competition and lower margins,” Cheesman noted as the reasons for increased claims.
“With less activity in various sectors, you have the same level of suppliers seeking work from a smaller pool of work. This level of competition leads to lower margins, which are not sustainable.
With increasing claims, the trade credit space offers brokers an opportunity to approach clients and discuss their coverage as Cheesman gave a simple exercise for brokers to highlight the risk.
“Ask questions about their clients business and what the impact would be on their business if their largest client could not pay,” Cheesman said.
“Debtors/Trade receivables is often the largest asset of a business. Companies insure many other risks to protect themselves but often fail to see that a large bad debt can have a bigger and more immediate impact on their business.”
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