Our predictions for the evolving risk landscape 
By Ray Massey, Director of Underwriting — Credit, Tokio Marine HCC 

The trade credit market has been a very strange environment to operate in over the last 18 months.
We have witnessed a record drop in insolvencies (whilst constantly expecting a tsunami of failures) contradicting virtually all economic forecasts made at the outset of Covid. In addition, there was a creeping sense from prospects that they didn’t need the protection that trade credit insurance provides earlier this year which was concerning but understandable.
Understandable because we are all operating in a new world and we are coming out of a period the likes of which we have never experienced before with the true economic conditions masked by unprecedented peacetime Government support.
These support measures are finally easing however and, while we are all focused on the now, specialist brokers and insurers like Tokio Marine HCC need to have one-eye on the future on our clients’ behalf.
Our philosophy has always been to underwrite sensibly for the longer-term, and our belief that insolvencies will continue to increase through the coming months means we need to be confident of the terms and limits being offered now.
So what are we expecting to see in the coming months and how do we see the risk landscape evolving, beyond a general increase in business failures? With the obvious caveats that nobody really knows what is coming and against the backdrop of economic predictions that have failed to materialise, we would highlight the following: 
Construction is always one of the first to experience corporate failure and we have already seen a couple of noticeable insolvencies in this sector, including NMCN Plc.
Warehousing, transport and haulage and manufacturing are three other sectors that usually follow construction in terms of insolvencies, so we are keeping a close eye on them. 
On the face of it, all these sectors have a lot going for them – construction is holding up well, warehouse demand is booming, haulage is riding the crest of the warehousing and online shopping boom, and manufacturing is managing the Brexit disruption very well.
Each of these sectors have reasons to be optimistic with pent up demand for their services unleashed but they also all have supply chain, raw material, labour and cost issues. And as they attempt to overcome these challenges in the coming weeks and months and take advantage of opportunities as the economy returns to growth, there is a heightened risk, as there always is when the economy is in growth mode, of increased insolvencies.
It seems a little counter-intuitive therefore for the credit market to be so competitive on both terms and limits at this time. One has to hope that there isn’t the reaction to increased claims as there was in 2008; we do not want to see a repeat of a negative reaction from underwriters once claims start to increase as that will simply cause further damage to the product’s reputation.
While short-term pressures are always hard to resist, we need to find a more mature, nuanced approach to providing trade credit protection. An approach that helps clients make their supply chains more sustainable, helps them make better strategic choices and one that starts to take the trade credit market away from the boom and bust we have all put up with for too long.
These are indeed strange times, but it is often in times like this that true innovation comes to the fore – necessity is the mother of all invention after all. Let’s take this opportunity, this short break in the endless pattern of cycles, and start approaching the protection of our clients in a more meaningful, supportive and sustainable way.
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