Frayed relations

If the economic downturn has blown a frosty wind into every relationship throughout the IT channel in the Middle East during the last 12 months, nowhere has it been felt more acutely than in the always-sensitive affair between distributors and credit insurers.

Tags: CreditDespecEmitac GroupEuler HermesUnited Arab EmiratesWestcon Group Incorporation
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Frayed relations Leroy Almeida, Al Mulla Atradius Insurance.
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By  Piers Ford Published  October 25, 2009 Channel Middle East Logo

That sounds reasonable enough, but some distributors accuse credit insurers of unreasonably extending that caution to established customers. Jaison Korath, financial controller at Despec Mera, would like to see more pragmatism, and risk assessment on a case-by-case basis, for example.

“Credit insurers took a U-turn during the past year and I personally think the reaction to the market situation was out of proportion,” he said. “They were cutting the credit limits for even traditional customers, which has resulted in scaling down the business.”

Steve Lockie, group managing director at Westcon, says political changes in the region have not helped the situation either, the reluctance of insurers to cover risk in key markets such as Pakistan being a particular challenge, for example. Overall, he describes the response of credit insurers to the shifting financial climate as “a really mixed bag”.

“We have been fortunate to have a good dialogue and credit history with our partners and although impacted, we have managed to mitigate most risks,” he said. “Some insurers have completely closed to new business, some have cut lines arbitrarily, some have been more targeted; we have seen a huge variety of actions.”

Lockie would like credit insurers to communicate far more effectively with resellers, identifying how they work, and why they need to file audited accounts. And he would like to see fewer arbitrary decisions in revoking credit lines.

“I feel a recognition of extended payment terms for government projects also needs to be taken into account, in developing the terms and conditions of insured business,” he said. “They [credit insurers] should also spend more time with the distributors, as we have been managing risk in these markets far longer and in a far better manner than any insurer has.”

Such stinging criticism is not reflected across the entire distribution community in the region. Amer Khreino, general manager at Emitac, for example, says his company’s credit insurer has kept the business informed with market updates and outlooks. “Our full transparency, co-operation, close market proximity and competences in managing channel credit and business have impacted on our relationship with our credit insurer positively and stimulated its appetite to place higher investment with us,” he said.

Khreino suggests that both sides will benefit from having to prove themselves in such difficult economic times, and that credit insurers will profit from higher visibility on the market landscape in the Middle East. He does, however, join the clamour for credit insurers to place higher investment in market intelligence, underwriters and coverage in an industry that is still growing — a position that also resonates with Korath at Despec Mera.

He says Despec Mera’s insurer has “supported us to a satisfactory level” but overall, insurers are too quick to treat the entire market the same and fail to take individual circumstances into account.

“I think there is a possibility that credit insurers can play a greater role in the distribution sector,” he said. “Credit insurance has created some level of discipline in the market. Customers audit the books and respect the payment terms, so it’s a wonderful tool for establishing a clear channel of business.

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