Cofac: Cos Seek Coverage For When Customers Don't Pay
April 03 2009 - 5:08PM
Dow Jones News
As the downturn continues, more businesses are buying insurance
to protect themselves if customers don't pay their bills, says a
provider of the coverage.
"Since the beginning of the crisis, U.S. companies are realizing
that although they thought" their trade receivables were secure,
"there are risks all over the place," said Francoise David,
chairman of Coface, a unit of French bank Natixis (KN.FR) and the
second-largest provider of credit insurance in the U.S.
Credit insurance, which guarantees payment of a company's trade
receivables, has been much slower to catch on the U.S. than in the
European Union, where longer payment cycles have made the coverage
more popular. But the weak economy has driven up applications for
coverage from U.S. companies by 59% last year, David said.
Customers range from manufacturers to advertising agencies. The
cost for coverage is typically around two-tenths to three-tenths of
one percent of sales. If Coface sees a pattern of non-payment by a
particular company, it may step in and notify its customers that
sell to that company that it will no longer cover those
receivables.
European insurers dominate the market, but some U.S. insurers
offer the coverage too, David said. Euler Hermes Group, a unit of
Allianz SE (AZ), is generally considered to be the market leader.
Some U.S. insurers, including American International Group (AIG)
offer the coverage.
In 2008, total U.S. credit insurance premiums were about $800
million, compared with $6 billion for the E.U., according to
figures collected by Coface.
-By Lavonne Kuykendall, Dow Jones Newswires; (312) 750-4141;
lavonne.kuykendall@dowjones.com