Credit insurance meets trade finance: A smarter way to risk
In an increasingly uncertain economic and political climate, multinationals face mounting challenges in managing risks and securing favorable trade finance terms. Trade credit insurance has traditionally been a key tool for protecting against bad debt, but its full potential often remains untapped. Misaligned policies, administrative complexities, and inefficiencies hinder its effectiveness, particularly when it comes to meeting lender requirements. However, innovative solutions are redefining how multinationals approach trade finance and credit insurance. These solutions act as bridges between corporate credit insurance policies and the needs of lenders, enabling more efficient risk management and unlocking better financing terms.
Many multinationals face fragmented insurance structures due to purchasing credit insurance policies locally, leading to inefficiencies and creating a patchwork of coverage that lacks cohesion. Operational inefficiency increases and often cover is not tailored to the true risk profile of a multinational organization. These inefficiencies extend to trade finance, where lenders often require specific coverage terms that traditional trade credit insurance policies fail to address, creating a disconnect between insurers and financiers.
To address these challenges, solutions can be customized to meet the specific needs of multinationals and their lenders, such as taking an existing corporate trade credit insurance policy and enhancing the benefits required by its lender to meet with internal or regulatory requirements. This allows multinationals to manage risk effectively, to keep control of their insurance programs and insurer relationships, while providing lenders with confidence by aligning insurance terms with the enhanced needs that their risk teams might require.
This approach can streamline processes, allowing multinational clients to secure financing more efficiently without restructuring their primary insurance programs. Clients can maintain control over their core corporate trade credit insurance policy to ensure consistency in overall risk management. A multinational client with a global trade credit insurance policy might use this solution to reassure its lenders of payment security in a key region, thereby unlocking a substantial trade finance facility without modifying its primary cover.
An existing trade credit insurance policy can also be supplemented by increasing its maximum liability or adjusting terms to meet other lender requirements, such as a tailored policy wording separate to that of the corporate. This provides very specific solutions that address unique risks or gaps which might otherwise impede financing agreements. They improve financing terms by both reducing lenders’ perceived risk and offer flexibility and scalability which will improve costs, and all without necessitating an overhaul of the primary policy.
As global trade continues to evolve, multinationals need smarter, more adaptive solutions to manage risk and optimize finance. Aligning the trade credit insurance with lender requirements centralizes and streamlines solutions, reducing administrative complexity. These policies enhance risk management by reflecting the multinational’s true financial strength and risk profile. They also increase financial agility, enabling effective responses to opportunities and challenges in the global marketplace.
With this approach, servicing both corporates and lenders alike, the benefits are shared, and financing agreements tend to be competitive and very much tailored to the client’s underlying structure. Lenders will benefit from capital risk mitigation (when applicable), which will therefore allow them to increase their lending capacity or obtain internal limit relief in highly concentrated exposures, increasing the overall profitability of the financing contract. All the above will allow multinational clients to obtain better terms and conditions in their financing agreements around working capital.
WTW’s Trade Credit Multinational Team is uniquely positioned to help multinationals design and implement these innovative solutions. Multinationals ready to innovate and optimize their strategies will find these solutions indispensable for staying competitive in today’s dynamic global marketplace. Combining our expertise in helping financial institutions with our expertise in trade credit insurance, WTW delivers tailored solutions structured to meet the unique needs of multinationals and their lenders. The result is streamlined operations, reduced complexity, and enhanced value from trade credit insurance programs.
For smarter ways to manage your risk, please contact our team.
WTW hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, WTW offers insurance products through licensed entities, including Willis Towers Watson Northeast, Inc. (in the United States) and Willis Canada Inc. (in Canada).
