Many companies
underestimate export trade risks

In a time of expanding international trade, insuring trade receivables is more important than ever. Euler Hermes, the world’s leading provider of trade credit insurance solutions, offers tailor-made products and services for exporting companies

Clemens von Weichs, Chairman of the Euler Hermes board

Can a company be innovative even though it has been offering the same product for more than 100 years? Of course it can, and Euler Hermes proves it. Euler Hermes ACI — which began as American Credit Indemnity (ACI) — has insured and managed trade receivables in the United States since 1893, which makes it the oldest trade credit insurer in the world. In 1996, ACI became part of what is now the Euler Hermes Group — the global market leader. The World Policy for multinational corporations, launched in 2004, is a good example of the innovation the Euler Hermes Group has brought to the trade credit insurance market. Instead of different policies for each exporting country, a company just needs to sign a single contract. “On the other end of the scale, we also offer easy-to-handle products for small businesses, like Euler Hermes ACI’s Business Advantage policy,” says the CEO of Euler Hermes Group in Paris, Clemens von Weichs. “What’s more, we continue to improve our service. Our industry-leading online policy management system makes coverage requests and claims submission much easier for our customers.”

Knowledge, strength and expansion

Euler Hermes — named after the Swiss mathematician Leonhard Euler and Hermes, the Greek god of merchants — has expanded organically and through strategic acquisitions to become the world’s largest player in the trade credit insurance market. Backed by a strong parent company, the German-based Allianz Group, Euler Hermes has the financial stability to provide long-term support to its clients.

“We’re not only close to our customers, but also to their buyers — in 41 countries around the world,” explains von Weichs.

Paul Overeem, CEO of Euler Hermes USA

“We have one of the largest proprietary corporate databases in the world, containing up-to-date information on more than 40 million companies. With the help of our group-wide IT system, 80% of the credit limit requests we receive are handled in two days or less and 60% are decided immediately online.” While domestic trade credit insurance is still important, the main growth within the industry comes from insuring export receivables — double-digit growth not only in the new markets of Asia and Central/Eastern Europe, but also in the United States. “The North American market is a strategic market for us. US companies often prefer a letter of credit, provided by a bank, but this is more expensive and less flexible than credit insurance,” says von Weichs.

“Traditionally, American businesses are ‘risk takers,’ and they take little precaution against the risk of bankruptcy of their buyers, contrary to their European counterparts,” says Paul Overeem, CEO of Euler Hermes ACI. “There are several reasons for this, such as domestic suppliers feeling more comfortable dealing within their own geographic market and many businesses having invested in fortifying their own credit management infrastructure.”

Ensuring fiscal responsibility has become a priority for US public companies. Trade credit insurance offers a solution for directors and officers — by purchasing a trade credit insurance policy, a company retains an objective third party that can review existing and new buyers and help a company avoid potential pitfalls. “The trade credit insurer becomes a major partner in the sales and credit management process by vetting and monitoring buyers,” Paul Overeem says. “In most instances, that is a welcome reality check that allows a company to make more informed decisions about the granting of credit.”

Euler Hermes ACI is among the top-performing subsidiaries of the Euler Hermes Group. “Since late 2003, we have invested heavily in the realignment and expansion of our sales force and customer service capabilities to support our growth initiatives,” says Overeem. “The US market has experienced strong growth, and not withstanding our market leadership position — nearly 40% market share — we have been able to expand our presence and outpace the rate of market expansion.”

Globalisation has changed habits

Still, many companies entering a new market do not even realise the risks they face. Payment delays, commercial practices, the legal environment, political uncertainties — all these factors and many more can be found in a market with which you are not familiar. “Many top managers see these risks, but they overestimate their own strengths and capabilities and think they will be spared from bad experiences,” says von Weichs.

“Others don’t even know that credit insurers can advise and protect them.” And then there are those who shy away from new markets because the risks seem too high. In addition to insuring receivable risks and recovering bad debts, Euler Hermes updates its clients on relevant economic and political risk issues. A trade credit insurance policy can allow a company to expand into new markets by providing the business intelligence needed to choose the right buyers. “Moving into a new market creates a new set of risks, because you have a lack of information, a lack of experience, and/or a lack of proximity to your debtors,” says Overeem. “A Euler Hermes ACI programme closes all those gaps for our policyholders.”

“If you think how much is at stake if an important partner becomes insolvent, the cost for credit insurance is almost negligible,” says von Weichs. “Companies used to be protected by limited business parameters — with globalisation, everything has become possible, the competition has increased and businesses can get into difficulties much faster.”

Globalisation has changed many trade habits, and new markets have to be included in existing policies. “That’s why we need risk analysts and credit underwriters wherever there’s trade,” says von Weichs. “Once we’ve opened an office, we will offer our product to local companies as well. Being part of the Allianz Group with its presence in over 70 countries helps a lot.” In 2005 alone, Euler Hermes entered new markets in all three Baltic States, in Russia, Turkey, Japan and India. Von Weichs concludes, “I can’t tell you which markets we are eyeing next, but our business goes with the trade.” The Euler Hermes World Policy is simple and flexible. It consists of a single global legal document with common universal core wording and an endorsement schedule to capture the unique features of local commercial practices and jurisdictions.

Globally positioned, multinational businesses can choose a policy structure tailor-made to their requirements:

• A centralised international programme whereby a single legal agreement between the multinational parent company and Euler Hermes covers receivables risks of the entire group on a worldwide basis. This option permits one central point for all negotiations, regular reporting and services with a designated account management team to meet the client’s ongoing requirements.
• A centralised programme with the above features but with additional services provided to the subsidiaries by the Euler Hermes group office located closest to them.
• A decentralised programme where the overseas subsidiaries receive a local language version of the World Policy and are serviced locally by the relevant Euler Hermes subsidiary. The subsidiaries will receive full service, though all negotiations are conducted at head office level to agree to terms and conditions centrally.

Contact details:
Global headquarters: Euler Hermes SA, 1 rue Euler, 75008 Paris, France Tel: +33 1 40 70 50 50 Website: www.eulerhermes.com
American subsidiary: Euler Hermes ACI Inc., 800 Red Brook Boulevard, Owings Mills, MD 21117, USA - Tel: +1 410 753 0652 - Website: eulerhermes.com/usa

 

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