Not enough businesses using credit insurance says Euler Hermes
Euler Hermes says too few companies are using credit insurance to manage risk
Companies in the Middle East are gradually realising the value of credit insurance, but the percentage of trade covered by such insurance is infinitesimally small, according to trade related credit insurance solutions provider Euler Hermes.
Speaking at the Channel Middle East Conference 2012, Massimo Falcioni, CEO and Mahan Bolourchi, head of risk, information and claims, from Euler Hermes, said that the regional IT channel is growing as regional ICT spending rises by 8%, and that Trade Credit Insurance can help SMEs that are starting out in the region to build their business without undue exposure to risk.
Bolourchi explained how insurance is extremely important to safely conduct business. He said: "Insurance is a tool which will definitely reduce your debt. The biggest part of your business, the accounts receivables is insured in order to give you the security, so in the worst case scenario you can get at least get 85-90% of your investment back."
Euler Hermes is one of the few companies to offer Trade Credit Insurance in the region, since establishing in 2006, and the company, which is one of the leading providers of trade credit, has been gradually expanding to offer services across the whole region, and into parts of Africa too.
Falcioni said companies now understand the risks of poor credit management, especially since the economic upheaval of the past few years.
"Credit insurance is the easiest way to protect your account receivables. Unlike banks, we don't ask for a guarantee, but we do our own analysis of a particular customer of our policy. This makes the system very convenient. It's the easiest way to protect your account receivables. There should be no company in the world selling on credit, without having their account receivables protected by Trade Credit Insurance coverage," he said.
Very few businesses in the region invest in TCI policies, Falcioni said. IT businesses are showing massive growth, but credit insurance is rarely used by these companies. Falcioni said that this could be primarily due to lack of knowledge. For an unprotected business, in the event the company is unable to retrieve payments and is continuously losing revenue, the only option may be to close shop and flee.
Falcioni said that the uptake of TCI in the GCC doesn't reflect the GDP or growth of the ICT industry in the region, with just 0.006% of the volume of business insured.
He said: "The GDP in the region is growing, competition is growing, export is growing. The picture today is not honest, it's not reflecting the real situation. We are operating since 2006 and every year we witnessed triple digit growth. Now we are guaranteeing transactions worth $7 billion. It seems to be high, but it is nothing compared to the potential growth and what the IT business is showing in terms of real figures."
Bolourchi added that Euler Hermes looks after the best interest of its policy holders. It recruits staff that are from the industry, have worked in, and are well connected to the market. He said that Euler Hermes gets deals with every policy holder on a regular basis and looks into their day-to-day business, to both advise and assess risk. He said: "All credit facilities insured with us are monitored. We don't just leave the policy. We continue monitoring the transactions."
Explaining to the audience the way the cost of a TCI policy is calculated, Falcioni said: "Usually cost is the technical element, it is risk based. First comes the risk assessment of a portfolio. The average rate that applies in Italy to the risk in that area is 0.4%. In this area (GCC) it is lower, its 0.3%. In other areas like the US it is even lower. This is influenced by the huge turnover of the companies."