Risk managers advised to manage insurance costs to leverage working capital

Organizations can release working capital by reducing insurance and risk costs, while managing changing risk factors, a Marsh briefing suggests.
These changing risk factors may include supplier liquidity, customer default and increasing production and transportation overheads.
In ‘Improving Working Capital and Business Resilience,’ Marsh recommends that risk managers explore a number of options to help deal with the current financial climate. Companies should, for example:
Manage insurance costs to create additional working capital. Given the current soft market environment (in which companies are able to purchase many different types of insurance coverage), Marsh is encouraging companies to review how much risk they retain and how much insurance they buy, taking account of the likely loss profile of the business and the appetite for retaining risk.
Maximize the value of trade credit insurance. This kind of insurance provides companies with an additional security across their book of debts, Marsh notes. By assigning the policy to a financial institution, accounts receivable become a more acceptable asset, securing either greater borrowing or a cheaper cost of borrowing.
Pay insurance premiums by installments. By spreading payment, businesses can free up cash for use elsewhere.
Consider other forms of insurance. Review liabilities on the balance sheet, such as environmental, historic disease or contractual liabilities, Marsh’s briefing advises. Insurance solutions or contract renegotiation may mitigate or transfer some or all of these risks and potentially free up working capital.
Build business resilience. Volatile economic conditions can change areas and levels of risk rapidly; companies may now be exposed to risks that were previously not of concern. Businesses should review their risk exposures, assess their potential impact and put in place robust business contingency plans.