January is named after the minor Roman Deity, Janus, the God of doors and transitions. He is sometimes depicted with two faces, one looking forward, and one looking back. Perhaps for this reason it is traditionally a time to reflect on the year that has just gone, and plan for the year that is ahead. I don’t think anyone writing 12 months ago today was forecasting the year as it actually turned out. `Unprecedented’ has become an overused word, but it has been a very different experience. For many it has had tragedy in it as well, with the premature loss of loved ones, or serious illness. All of us have been affected personally one way or another.
In business terms there have been winners and losers, sadly many more of the latter. Major names familiar to us all have gone - Thomas Cook, Debenham’s, Burton’s (Arcadia) to name but a few. Businesses in hospitality, retail, travel and entertainment in particular have been put under a tremendous strain.
More parochially, 2020 also saw us lurch into a `hard’ trade credit insurance (TCI) market, with rising premiums and a reduction in the availability for cover – insurers expecting their customers to pay more for less, and some seemingly closed for new business. It felt both familiar and different. Familiar because, well, we’ve been here before, most recently in the credit crunch of 08-09, but many will recall 1991-92, and 2001-02. How different? Because, this time around:
- Claims were relatively low in 2020. In previous cycles it’s been a reaction to rising losses, this time around it’s in anticipation, with forecasts of an increase in UK insolvencies of 25 – 30%, once the various Government support mechanisms finally dwindle away.
- The government have directly supported the majority of the UK TCI industry. This means, at least so far, that capacity has not contracted anything like as badly as in previous recessions, and certainly not as bad as 08-09, which saw one challenger insurer (Amlin) exit the market completely.
- We’re in a hard market for general insurances as well. After a protracted soft market of decades, general insurers are also seeking to bolster their premium book. Many of these insurances, unlike TCI are `must have’s’, leaving clients with invidious choices come renewal.
It’s a compelling and seemingly predictable pattern, though I don’t think even the gloomiest forecaster would have put a worldwide bank crisis and a pandemic in roughly the same decade. The insurer’s reaction is understandable, but depressing.
As to 2021, it seems likely to be more of the same. Whilst the release of the vaccines provide hope that we can soon return to something more like normal, it will be the Spring or even the Summer before the effect is felt, and that is when Government support will dribble away, and the economic birds will come home to roost. All the pundits say that this will mean a steep rise in business failures, so not a good time to drop TCI, but all the signs are that some businesses will have no choice.
Finally, I’ll risk a longer term prediction here. Once the expected claims have washed through (and heavens knows when this will be), and insurers have lost more of their clients to self insurance, premiums will reduce, followed by an increase in capacity and competition to win business back – and back to a soft market we’ll go. We’ll see.