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Trade credit insurers likely to limit cover amid pandemic: Marsh

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business interruption

Trade credit insurers are currently reviewing their exposures and will likely limit coverage amid the growing economic fallout from the coronavirus outbreak, Marsh LLC experts said Wednesday.

The comments came during a Marsh LLC webcast in which experts urged businesses to shift from planning and preparation to proactively manage the impact of COVID-19 on their operations and employees.

As supply chain disruptions continue amid coronavirus lockdowns and quarantines in Europe and the United States, business bankruptcies are expected to increase, experts said.

“We are aware of many companies that are trading into some of the red zone areas. All credit insurers are currently reviewing their exposures and are expecting losses to increase over the coming weeks and months,” Tim Smith, London-based global trade credit leader, at Marsh LLC said during the brokerage’s webcast on managing the coronavirus outbreak’s continuing effects.

Most insurers are working with policyholders to establish if payments are still being made, or if they are being delayed, Mr. Smith said.

While insurers expect trade to fall, they are specifically looking at key areas of the outbreak to see “whether they can reduce exposures to just a need basis what is being delivered, what is pending and what is being ordered,” he said.

During this time trade credit insurers are likely to reduce their cover to “need only,” but insurance will cover “some insolvency or defaults on any valid due debt,” he said.

Events over the last two weeks have affirmed that this is “a global emergency with significant repercussions for business and the global economy,” said James Crask, London-based global resilience advisory lead, Marsh Risk Consulting.

“We’re seeing an escalating situation in Europe and the United States. The issues facing businesses today are partly supply chain-related and partly about movement of people,” he said.

Businesses need to proactively manage their response, Mr. Crask said.

“There needs to be a shift in mindset now. Businesses that have been in preparation and planning mode must now flip to response mode,” he said.

“That means looking at business impacts and critical issues that you’re dealing with right now and start to forecast what you might be facing in the coming days and weeks. Then think about the resources you need to line up while you manage those business impacts,” he said.

For example, companies need to think about what happens if they lose a large proportion of their workforce, say 30%, which “could be the result of people getting sick themselves, self-quarantining, or because schools close and employees need to take care of kids at home,” Mr. Crask said.

In the United States, direct government support for businesses’ response to the coronavirus epidemic is unlikely, said Daniel Kaniewski, Washington D.C.-based managing director, public sector, Marsh & McLennan Advantage.

“That means it’s up to businesses to proactively manage the situation to protect their people and operations,” Mr. Kaniewski said.

More insurance and risk management news on the coronavirus crisis here.