Credit Insurance Claims Up; What Does This Mean?
2019 has been an interesting year so far with both consumer and business confidence wavering due to many factors; global economic conditions, Brexit, local competition, global trade ‘wars’ and political uncertainty.
What we have seen at NCI is a steady demand for trade credit insurance cover, which indicates businesses are concerned about their credit risk and are being proactive in protecting themselves.
Premium rates have remained steady while we have seen slight increases in turnover. Backing this up is an increase in claim volumes. May was the highest ever number of claims received in one month. The flow-on effect of this was that in August, the number of claims paid was at an all-time high.
There have been some notable statistics released recently, starting with Australia's GDP growing at just 1.4%, against a projection of 2.75% - the slowest in 10 years. The Reserve Bank of Australia holding the official interest rate at 1% would suggest that it will take some time for the economy to get back to a position of significant growth. Hopefully, this can shift consumer and business confidence approaching the end of the calendar year.
It is not just our claims figures that have been setting records. The combination of collection actions, claims received, credit limit decisions and overdue accounts is at a three-year high with our trade credit risk index reaching 838. Claims received in the second quarter came in at 419 with a value of $22.4 million. Around the country, New South Wales and Queensland have both received their fair share of claims with 27.25% and 27% respectively. This is followed not too far behind by Victoria with 21.75% and then Western Australia and South Australia.
Alarmingly, all these negative indicators have increased over the past 12 months. As we head into the fourth quarter, could we expect to see a further rise due to increased spending around Christmas? Drilling down into the claims we received, labour hire and electrical were number one and two followed closely by building and construction.
An industry sector which has been hit hard recently is the agriculture industry with notable insolvencies such as Special One Grain, GrainPro, All Commodities, Lempriere and Dalgrains all entering external administration. For businesses that operate on extended credit terms and low margins, insolvencies such as these can be devastating for the industry and especially for one that is in the midst of drought.
In summary, questions should be asked of all businesses, large and small, what would be the impact on the business if their largest customer was unable to pay? Unfortunately, there are many businesses throughout Australia that would be in great difficulty if that situation was to arise, statistics referred to earlier would suggest that there will be more insolvencies and more difficulties for the remainder of 2019.
So, now is a good time to review your top customers and gauge what effects the current economic conditions may have on them – and your business.
National Credit Insurance Brokers
P:1300 654 500