New Canadian association says there’s major opportunity in receivables insurance market

Less than 1% of Canadian companies are currently using receivables insurance as part of their financial planning, creating a new opportunity for brokers, according to a new organization promoting the opportunity for such coverage.

Less than 10,000 of Canada’s 1.1 million employer businesses currently use that kind of insurance, also known as trade credit insurance, according to the Receivables Insurance Association of Canada.

That’s compared with market penetration of up to 30% in European countries and 15% in the United States, the association says.

Receivables insurance protects businesses from buyers, either in Canada or abroad, that are unable to fulfill their invoice payment obligations, in a similar way to how mortgage insurance protects a bank in case of foreclosure on a property.

“Such unforeseen trade disruptions can include buyer insolvency, protracted default – a failure to meet obligations on time due to inadequate cash flow, or political disruptions that lead to a loss on current receivables,” according to the association.

The policies would pay out if an adverse economic or political event occurs and a business can’t pay for goods or services in transit or already provided.

It can also allow businesses to have higher lines of credit for their buyers, so they can purchase more products and services, according to the association.

The group says the “lack of receivables insurance coverage represents the biggest unidentified and uninsured exposure facing Canadian businesses today.”

Receivables Insurance Association of Canada launches today @creditinstitute national conf receivablesinsurancecanada.com/blog/2013/6/12… #tradecredit #politicalrisk

— RIAC (@RcvblsInsCanada) June 12, 2013

It also argues that the “vastly under-insured state of corporate receivables in Canada introduces undue risk on working capital loans, inhibits the amount that can be loaned, and also forces higher interest rates on business clients — artificially restricting sales growth.”

The association is now inviting brokers to help grow what it says is a $200 million market to $350 million within five years.

“Part of our challenge is to erase a misunderstanding among Canada’s CEOs, CFOs, credit managers and enterprise risk managers about the role of receivables insurance, with many believing it can only be used to protect export sales,” Mark Attley, president of the Receivables Association of Canada.

“This is untrue, and in an economic climate that is prone to unforeseen events, unwise as well,” he said. Attley was a speaker at the Credit Institute of Canada National Conference in Jasper, Alta. Wednesday.

The association’s founding members include a “Group of Seven” underwriters including AIG Canada, Atradius Credit Insurance N.V., Coface, Euler Hermes Canada, Export Development Canada, Guarantee Company of North America and Red Rock Insurance Services Ltd. as well as brokers, Aon Canada Inc., Marsh Canada Ltd. and Millennium CreditRisk Management Ltd.