The Credit Insurance Market Place

by Tony Hannigan

There has been a considerable change in risk appetite and flexibility during the last 12 months. Anecdotally at least, 2009 was the most difficult trading year the credit insurance market has ever experienced, if in reality it was worse than the recessions of the 70’s, 80’s and 90’s when comparing claims costs on a like for like basis is questionable.

However, what cannot be argued with is the dangerous combination of increased claims activity in both number and value of claims submitted, very low premium spends and a general exodus of policyholders deciding to self insure which the market sustained in 2009.

This combination left the market with an imbalance between revenue income and potential liability. This could only be controlled by implementing a programme of reduced credit limit coverage on buyers and in many cases withdrawing cover completely. At policy renewal, increasing premium rates and restricting policy flexibility was the norm. This renewal philosophy across the entire Market made any attempts at innovation and flexibility extremely difficult.

Coming into 2010 the market has contracted considerably. Individual insurers have not formally publicised the true impact of lost business due to their underwriting approach, but is fair to say it has been significant. Claims numbers across the market during 2010 have been considerably lower than expected. Indeed the performance to date of the major credit insurance underwriters all re-affirms this.

Whether this is due to an actual upturn in the economy, or the result of a reduced policyholder base producing less over all claims numbers and avoidance of claims due to credit limit reductions and cancellations, is difficult to gauge at this time. What is far easier to gauge is the considerable upturn in the market’s appetite for retaining existing policyholders and to win new business. This is reflected in both buyer risk underwriting, premium costs and policy structure flexibility. There is experience of clients being offered up to 8 separate insurers, all vying to win their business at this renewal, whilst only the incumbent underwriter was prepared to offer any terms at all in 2009.

Furthermore cover appetite on some well known buyers has returned too. In 2009 there would have been no or very little cover available on the likes of Ford Motor Company, Jaguar Land Rover or Clinton Cards, cover has now returned, subject to the overall attractiveness of the specific case to underwriters.

This shift change can only benefit existing credit insurance purchasers and new entrants to this type of cover. There are also some signs of innovation returning to meet prospective clients needs. In particular, Towergate Credit has recently launched a new credit insurance product aimed at the sub £350,000 SME market. A sector that now has to all intents and purposes been unable to purchase cover due to the relatively high entry premium costs (c£3,000) and excess deductibles of £500 - £1,000 per claim that reduce considerably the benefits of cover. Towergate’s new product branded InvoiceProtect has a fixed £1,870 premium, £250 excess deductible and simple administration requirements.

For more information, please contact Tony Hannigan,

Senior Account Handler Complete Commercial

on Direct Dial - 01908 693210

or Email Tony at tony.hannigan@towergate.co.uk

or visit www.towergatemiltonkeynes.co.uk

Access to Credit Reports

Consumers can now access their statutory credit report online for a nominal fee of only £2 from all three major UK credit reference agencies: Experian, Equifax and Callcredit.

An agreement between the Department for Business, Innovation and Skills and the industry means consumers will now have easier access to their credit reports.

Continued free access to credit reports for victims of ID fraud and the financially vulnerable has also been secured by the government.

Credit reference agencies and consumer groups have committed to work together to raise awareness of the importance of checking credit records.

Consumer Minister Edward Davey said: “These are highly beneficial changes. All consumers now have easier access to their £2 statutory credit reports, with victims of ID fraud and the financially vulnerable receiving free access to their reports. These significant improvements will help consumers take better control of their finances.”

Personal Debt approaches £1.5 trillion

Personal debt is now standing at £1.46 trillion according to Credit Action, the debt charity.

However, although the amount appears on the surface to be yet another eye-watering statistic, the figure covers £1.23 trillion which is secured against property (this property stock stays fairly steady at about £6 trillion ... over 4 x the indebtedness). Also, the headline figure went up by 1% year on year.

Current figures have kicked out an average debt per capita of just over £8,750 (excluding mortgages). Including mortgages, that figure shoots up to just under £58,000.

Current forecasts hint at a figure in excess of £113,000 by 2015. For the 11 million mortgagees out there, they owe an average £30,000 representing 126% of annual income. Perhaps more worrying, the average household personal debt on credit cards, personal loans - ie unsecured finance stands at £4,500. Extrapolate out households without any unsecured debt and that figure grows exponentially. We can’t be complacent.

Most European countries, even those in crisis, do not have personal debt figures of this order. Bear in mind the already flagged up public sector redundancies and the inevitable knock on into the private sector, and a 1% rise can be seen as a target, but the eventual figure could be considerably higher.

Cheque payments winding down

The Payments Council have set 31st October 2018 as the target date for closure of the UK Cheque Clearing - the use of cheques will stop from this date. The final decision on a closure date will be taken by the Payments Council in 2016 and will be dependent on there being a clear consensus across all interested parties.

This decision was taken against a backdrop of falling cheque volumes and after detailed consultation across the UK among cheque users. However, cheques remain a key means of payment, so the withdrawal of cheques will be a significant change for many businesses and individuals.

The use of guaranteed cheques has seen a particularly sharp decline in recent years and the guarantee service will cease from 30th June 2011.

While businesses will still be able to accept cheques after this date, they will not be supported by the scheme. Any cheques written up to 30 June 2011 will continue to be guaranteed as normal.

Although businesses can still continue to write cheques as normal, they should start to consider what the implications of their withdrawal means for their organisation. Some questions to ask yourself ...

• Do you currently receive cheques as payment? If so, how do you want to be paid in future?

• Will you still accept cheques once they are no longer guaranteed?

• Do you currently pay by cheque? If so, how will you pay in future? Remember, June 30th 2011 is already less than a year away!