Following an uptick in claims for late and non-payments in the latter half of 2018, next year will be unpredictable for businesses in all industries with external market factors playing more of a role in business failures.
Trade credit insurance will be invaluable for businesses in this volatile marketplace and trends in the industry are set to make trade credit insurance providers even more valuable to their customers, according to Atradius.
Mark Hoppe, managing director, Oceania, Atradius, said: “Increased use of technology, especially around data and analytics, will affect businesses and their insurers. There is a reality that digitalisation will become a factor not just for insurers but for clients in the way they do business.
“That could affect the products insurers offer their clients. For example, as more clients adopt emerging technologies such as blockchain, it’s up to insurance providers to understand how to work with those technologies in a flexible way.”
Need to find new ways
As recently as a couple of years ago, insurance providers could differentiate themselves based on the ability to provide timely data-driven insights to their clients.
That’s now the norm with nearly all providers able to deliver detailed insights within a day. However, with some reports suggesting banks use only one per cent of the information they hold, the need to find new ways to use big data is becoming more urgent.
Alongside that, organisations need to be compliant around how they use personal information, so it’s important to find a balance.
“In the next few years businesses should expect to see data being used more effectively to gain insights into all sorts of questions,” Mr Hoppe said. “The results will help insurance providers to provide a better service for their clients as well as find more efficiencies in their own businesses.”
Ideal for SMEs
Mr Hoppe says trade credit insurance is ideal for smaller businesses that can’t necessarily absorb the hits that come from late or non-payments.
“There are many opportunities for small businesses to grow in 2019 and the key is to understand which opportunities to seize and which ones to avoid,” he says.
“Businesses need profitable growth, which means understanding the market they’re selling to.
“It’s important to avoid undue risk and to not be afraid to say no to opportunities if they’re not quite right. Small businesses should seek out expertise and information to grow in the right direction with minimal risk.”
Global uncertainty around trade deals
Overseas opportunities are likely to dominate in 2019 with more opportunities for success but, equally, more opportunities for businesses to get burnt. With so much global uncertainty around trade deals, choosing the right opportunity is tricky. It’s important for businesses to have advisors on the ground who understand the local market and can pinpoint why customers want to source from that business.
“Before jumping into opportunities, especially with unknown customers in new markets, it’s important to understand what’s driving the opportunity,” said Mr Hoppe.
“It could be that the purchaser has had trouble with embargoes or other issues. Businesses need to understand the potential pitfalls before going ahead. This is particularly true of one-off sales that are potentially lucrative. If it looks too good to be true, it probably is.”
How to avoid unnecessary risk
While some businesses have a large appetite for risk, it’s important to set a strategy and stick to it. When opportunities arise that are outside that strategy, they warrant careful investigation and due diligence to avoid unnecessary risk.
“Volatility and unpredictability are likely to describe the next 12 months,” Mr Hoppe said. “With such uncertainty, it’s important for businesses to be very careful.
“Protectionism from trading partners such as the US, plus its trade war with China, can affect Australia. Changes to Asian markets therefore can make Australian businesses vulnerable.”
With genuine uncertainty about what the next 12 months holds, businesses are well-advised to protect themselves with trade credit insurance, Mr Hoppe suggests.
“This can give businesses the confidence to explore new opportunities and find growth without incurring as much risk.
“As well as protecting customers against losses from late or non-payments, trade credit insurance providers can provide data-driven insights that help businesses make informed decisions about markets, sectors, and individual customers to pursue.
“Armed with such information, businesses will be better able to successfully navigate the next 12 months.”