6/28/2018 - Trade credit has never been as popular in the US as it has been in Europe and other regions, but Euler Hermes is looking to challenge old perceptions with growth initiatives in the US and Canada.
A study by Marsh estimates that the US trade credit market would reach $1bn in 2018, compared with $4bn in the UK.
“While trade credit insurance was “born” in the US – when Euler Hermes’ predecessor, American Credit Indemnity launched 125 years ago – it has never quite reached the same level of penetration as in Europe or other markets. Accounts receivables make up about 40% of a business’ assets, and often sit unprotected,” James Daly, chief executive of Euler Hermes in North America told Reactions.
There are several reasons for this, ranging from US firms having a higher perceived risk appetite to an increased prevalence of cross-border trading in Europe compared with the US.
To that end, Euler Hermes has made it a point to educate businesses on the benefits of trade credit insurance, and the dangers of going without, even as an improving economy leads to fewer businesses facing insolvency over time.
“US companies are more entrepreneurial in nature, and thus more open to risk. With accounts receivables, however, that risk can mean the life or death of a firm, as one single unpaid invoice could put a company out of business.”
“In terms of changing this, we are working to educate businesses on all of the benefits of the product – and not just the insurance component. Really, that’s just the fail-safe. There is so much more to the product, including education and evaluation of new buyers – which allows companies to expand sales to new markets domestically and globally,” Daly said.
“We’ve put a great deal of effort into marketing, partnerships and our sales agents who are present throughout the US and Canada,” he added.
As Daly explained, despite corporate insolvencies continuing to decline on a global scale, insolvencies for major firms actually rose steadily throughout 2017, and while insolvencies are expected to continue to decline in the US that rate of decrease is expected to slow.
“It has been an uncertain environment for businesses in the US. More than 25,000 businesses failed each year, leaving dozens of other unpaid businesses in their wakes,” Daly said.
And while the global economy has been in a steady recovery post-financial crisis, political factors such as trade disputes, the impacts of Brexit and the potential of the US pulling out of the North American Free Trade Agreement could derail those gains in other regions to some extent as well.
Brexit has already caused an uptick in insolvencies in contrast to the majority of the globe.
“In Western Europe, the economic recovery and the supportive monetary conditions will continue to drive down the number of insolvencies (-3% after -6% in 2017), for the fifth consecutive year. The UK will be the main exception with a sizable increase (+8%) due to Brexit uncertainties,” Daly said.
While the Paris-headquartered insurer was recently acquired by Allianz, Daly says he doesn’t envision much change to how the firm operates on a day to day basis in the immediate future at least.
“Euler Hermes is a very successful business and we don’t expect any changes,” he said.
The firm has stated that following the deal that it would focus more on growing its IT capabilities.