Coface Sees Increased Demand for Credit Insurance

Trade credit insurer Coface North America is seeing a dramatic increase in demand for the product as bankruptcies rise in the United States, according to Kerstin Braun, executive vice president.

"Trade credit insurance is a tool to protect the biggest asset of the balance sheet, the accounts receivable, against bankruptcy or nonpayment and default," Braun said in an interview with BestWeek.

Credit insurance covers loss from the insolvency of a debtor and also covers past-due accounts.

Credit insurance is more popular in Europe, where companies often do business across country lines, and are exposed to different languages, cultures and legal systems. About half of all companies in Europe purchase the coverage.

Only about one in 15 U.S. companies purchase the product, but that number is increasing due to the economy and the growth of bankruptcies, Braun said.

"Bankruptcies are at an all-time high," Braun said. "That creates an awareness of the risk ... accounts receivables is the highest risk of a company. It's not the risk of sluggish sales or the risk of the cost of capital, it's the risk of payment default and unstable account receivables."

Coface is expecting the U.S. market for credit insurance -- currently about $800 million -- to double in the next five years. The worldwide market for trade credit insurance is almost $7 billion.

Premiums for credit insurance are based on either sales or the coverage offered by Coface, and generally run about 200 basis points of revenue, she said.

Also, Braun said when the economic conditions improve, there might be an uptick in bankruptcies. "When the economy starts to come up again, the companies that are under-capitalized now because they suffered going through all the crisis, and just when they want to pick up, they can't do it anymore-- the capital is not there for them," she said.