The COVID-19 Crisis’s Impact on Credit Insurance Companies

Box from the Financial Stability Report for the second half of 2020: The COVID-19 Crisis’s Impact on Credit Insurance Companies[1]

 

  • Credit insurance is intended to insure exporters and domestic suppliers in transactions where the customers do not pay for the goods following receipt.
  • As a result of the COVID-19 crisis, and in view of the increased risk, credit insurance companies reduced the insurance coverage they provide in respect of transactions, and even stopped providing insurance coverage altogether to certain industries that were seriously affected by the crisis, such as the airline and hotel industries.
  • With the aim of helping exporters and suppliers in the domestic market continue to operate, the government decided to provide guarantees totaling $750 million in order to reinstate credit insurance.
  • The guarantee will back up to 100 percent of the initial coverage that the insurance companies provide, with a deductible of 10 percent for export companies and 15 percent for companies whose operations are domestic.
  • Data from “ICIC—The Israeli Credit Insurance Company” show that the decline in the acceptance rate—the rate of the insurance amount that the company provides as a share of the total insurance coverage that a client requests—as a result of the crisis, was corrected upward due to the guarantees, but the coverage has not yet returned to the pre-crisis rates.  From March to June, the number of transactions in which the purchaser was in arrears on payment increased significantly, and about 70 percent of those transactions remained in arrears as of the end of October.
  • The guarantee is an example of government assistance intended to overcome a market failure during the crisis, and it has a very significant impact on continued activity in the economy.



[1] With thanks to ICICThe Israeli Credit Insurance Company for the database and the cooperation.