Risk management back on boardroom agenda

For their Q3 2022 Market Insights Report leading insurance broker AON spoke with prominent people in the credit insurance industry about key topics that businesses are dealing with today. These are the insights Atradius CMO Andreas Tesch shared.

On the evolution of Risk

“In terms of where businesses might see the risk evolving, it is actually globally: in developing markets, as well as in our well-established markets. We also expect to experience an increase in terms of frequency of defaults as well as severity. We see some very large buyers that could run into difficulties fairly soon, once the government support runs off. We also forecast an increased frequency of defaults, especially in certain sectors, namely construction.”

On the topic of globalization and de-globalization

“I think there is something in between also, which is what we call regionalization. Companies are not putting all their eggs in just one, but a few baskets. Businesses are far more aware of the inherent risks and volatility and risk management is back on the boardroom agenda. I also believe that this risk element features far higher in their investment decision making than has been the case in the past. Companies are also looking at diversifying their distribution as well as their supply, but it might not go as far as China or Latin America, we are seeing a more regional approach. What we hear from a lot of clients, is that they may be prepared to accept a slightly lower margin for the sake of an improved risk profile of client/supplier in a more stable legal environment.”

On the value of information

“It is key today, and it will be key in the future. The value we provide our clients is both how we retrieve information, and how we process information to enable this to be used by our clients in a way that supports sustainable business growth. In our underwriting process, we are monitoring 165,000 sources, 24 hours a day, seven days a week, matching data against the buyers that we are insuring. This is absolutely key to our core business. Next to that there is also the element of custom-made solutions on risk assessment, particularly in debt workout situations with companies that are in distress. Of course, information, again, is key. However, you will not be able to retrieve that information from the internet or from any annual accounts, only from face to face meetings with the debtor that allow us to build a true picture of their financial health.”

On the topic of inflation

“First and foremost, what we currently see is that a lot more clients are able to pass on the higher energy prices, higher supply costs to their customers, but nevertheless, it creates the needs for higher working capital. […] Monetizing their receivables is one of the key additional assets they can draw on. What we observe now is that the banks are tightening their lending criteria, so trade receivables are a great asset to use for accessing alternative financing.”

On retaining, developing and attracting key talent

“The challenge continues to evolve. A couple of years ago, it was much about work-life balance. Today, it is also about having a “purpose” that talented people are drawn to. ESG comes to mind.

Some of the questions new joiners ask is; as a firm, how do we position ourselves in terms of gender equality, what are we doing in terms of carbon footprint and of course, work life balance still plays a key role too, but in a different way. For instance, how can employees work more efficiently with us and make best use of their working time as well as their private time. Especially where people have a 1 hour or more commute, it is absolutely key for them to have flexibility with their employer. We need to be agile as an employer in applying different rules from one country to the other, and maybe from one individual to the other, despite the need to deliver our service consistently as an organization. There are ever changing challenges in how to attract and how to retain talent. […] There are a lot of competitors out there in certain areas beyond our direct market. The world is their oyster, they can work at any firm, and they can work from any place. It is such a fungible resource now.

One other particularity of our business is our international reach. There are very few firms that can allow talent at a very young age, at a very early stage of their career, to literally travel the world, and really make best use of the platform of an international company like ours.”

On ESG

“ESG is absolutely front of mind for us as a firm, for all stakeholders. We spoke about being attractive for talent. That is one of the key points for employees to see their employer put ESG high on the corporate agenda and priorities. I think there are some great initiatives within the insurance industry, like the Net Zero Insurance Alliance, which has committed itself to work with its client base to reduce the carbon footprint in the coming years, with very clear milestones already set.”

For the full AON report, please visit Aon's Credit Solutions Q3 2022 Insights