5 KEYS TO MANAGING COMMERCIAL INSURANCE DURING THE COVID-19 PANDEMIC
Recession is the first word often mentioned when talking about the economic effects of Covid-19 on the world. However, for companies engaged in international trade, the most important thing is to understand the risk associated with each new operation and to adapt to the idea that handling commercial insurance during the pandemic requires a different effort.
Few events like the Covid-19 pandemic have such severe effects on both: supply and demand for goods and services. Few situations, moreover, have such a wide geographical spread.
Both characteristics of this unprecedented global event demand that international companies design a proactive strategy to assess the industry, the supply chain, and the conditions around the geographic location of their business partners.
From Credit Report we want to offer you a compendium of useful keys to manage commercial insurance during the pandemic, whether your company is an exporter or an importer, no matter in which country of the world you operate:
1.- Active and continuous monitoring
So far, the most optimistic scenario indicates that the economic effects of Covid-19 will last until the third quarter of this 2020. That is why your company is required to have the data and information for commercial and credit analysis in the fastest and most efficient way possible.
This is a good time for your management team to set up some automatic alerts to follow the impulses or obstacles that the product or industry that is crucial to your company may face.
It is also a good time to create alerts by country of interest, so that you can have an analysis that allows you to respond to every change immediately.
2.- Tracking the supply chains
A company’s financial health is always part of the credit analysis, but that’s not enough today. If you want to understand the whole picture, you need to analyze the strength of your business partner’s supply chains and their ability to adapt in the short and medium term.
You need to know how many supply companies a potential new trading partner depends on and what its plan B is. This is in case the Covid-19 pandemic becomes an obstacle, so that it receives the raw materials it needs to maintain its production.
For example, as a company concentrates its business on a few raw material suppliers, its credit risk increases. Especially if it does not have alternative methods to maintain its production activity.
3.- Careful review of contracts
Faced with a scenario of high uncertainty like the current one, it is best that the internal dynamics of your exporting or importing company be prepared to re-evaluate its business partners and specially to review pending contracts carefully.
Economic dynamism, social distancing measures, government policies, and the impact on health systems with the disease vary from country to country and even from city to city. For example, it is not the same to think of new trading partners in Germany as in Italy or Spain, nor is it the same to equate conditions in Brazil with Peru.
4.- More information about the disease
Your management team should be prepared not only to gather more information about their potential business partners but also to provide more data of their own.
Given the circumstances, many insurers now request more detailed information about your available funds, your accounts receivable, your customer relationships, or details about the rules imposed by the authorities in your specific location.
It is best to collect all vital information and remain open to requests for environmental, financial or business data that go beyond the usual package.
5.- The basics of commercial risk
The conditions around a trading partner are undoubtedly the epicenter of credit risk assessment at this time of the pandemic. However, it is also important not to neglect other variables of the so-called 5C principles of credit: commercial character, capacity, capital, and collateral.
Several insurers are focusing their attention at this time on the conditions around the commercial operation and it is true that this is one of the key variables for measuring economic impact. But it is also necessary to follow how commercial credit scores deteriorate and how legal events that may involve potential business partners evolve. That’s not to mention the variable on how that company maintains relationships with its customers.
Covid-19 represents a challenge for the entire ecosystem of companies involved in international trade, but that does not mean that operations should be stopped. It is time to be proactive, to have a new strategy, and to move fast.
At Credit Report we have the technology and the best team to help you evaluate credit lines with companies throughout Latin America in an effective and timely manner to reduce the risk of default and help your business get through this crisis as safely as possible.