Q: Why do companies invest in trade credit insurance?

KVL: The first reason is to not lose sleep at 2 a.m. If companies do not get paid, they cannot pay their staff and suppliers. The second reason why companies contract trade credit insurance is because they are entering new markets. If a company that is well-established in the Mexican market is entering international markets, this means dealing with unknown buyers. That is the perfect opportunity for a trade credit insurance company because we have the infrastructure to analyze companies in different countries. We operate in 45 countries and we have around 25 risk centers around the world. The third reason for contracting trade credit insurance is because of transparency with investors. If unpaid receivables are insured, investors are much more at ease.

Q: What are the main elements that define Atradius' relationship with its customers?

SF: Relationships are key to our industry. As a client-oriented service company, we want our customers to see us as partners who are here to help them prevent and mitigate risks. We want to help them run their business by providing solutions tailored to their different needs. To do this, we need to understand their sector and the country they are in so we can be there during the credit insurance process, which goes beyond simple assessment to include risk prevention.

Communication is vital because there are common misconceptions about insurance companies that need to be overcome. We stress to our clients that their success is our own. Furthermore, we work in tandem with our clients to customize our products to meet their needs. The pandemic caused some in-person limitations so it was key for us to transform our approach and find new digital ways to work together. This has allowed us to build closer relationships with clients and has also boosted our internal performance. It has resulted in business continuity and a strategy to build solutions for today’s economic reality, which is driven by general uncertainty due to the economic crisis caused by the pandemic.

Q: What have been your client retention priorities during the pandemic? 

SF: We achieved a high client-retention rate last year, which reflects the customer-oriented actions we have been implementing despite the pandemic. Some sectors have experienced a deeper impact from the pandemic, such as tourism and entertainment, which makes them more receptive to credit insurance. But while receptive, companies also want to make the most of their investment. Credit insurance and risk assessments allow companies to boost their sales.

The will to use credit depends on the company, where it is based and its clients. In Mexico, for instance, there is a cultural barrier we need to break. A common challenge is a company’s client defaulting. Companies need to expect that but there are ways to identify and prevent those risks. For our part, if we fail, we cover our client’s loss and take legal action against the debtor.

KVL: The perception of insurance as a cost is slowly changing, at least in our existing business. We retained 95 percent of our premium clients despite significant price increases. The risk environment changed and therefore protection against risk became more expensive. We also reduced a great deal of exposure. In July 2020, risk analysis was quite different from how we saw risk in January. There were new risks that were hard to measure. Nevertheless, our clients stayed with us. In all the surveys that we have done and conversations we have had with them, they have said we have done a really good job in helping them through this crisis.

Q: What are the main differences between the challenges that your clients were facing in the summer of 2020 versus 2021?

SF: In 2020, we were all going through the initial stages of the pandemic. The common thinking was that the lockdown would be short and everyone would be back to work soon after. The economic and health uncertainty was latent at the time.

Today, the international vaccine rollouts are helping businesses recover economically but the scenario is different depending on the country. In Mexico, the situation is influenced by the US, as usual. The US vaccination program has been fast and successful, which has supported Mexico’s economic reactivation.

Mexico also held its midterm elections recently, which resulted in new expectations. The political environment plays a big role in the direction investment is going to take. The current scenario provides greater certainty, so the exchange rate is expected to react positively. In effect, the midterm elections introduced more certainty to the market than the government’s reforms or market policies.

A market that promotes certainty is likely to see a prosperous economic recovery. It is certainly good for the insurance sector. If companies feel safe and comfortable, they view insurance as a safe bet. In Mexico, insurance is seen as an expenditure, not an investment. Companies are not willing to pay very much for something they do not see the need for. When economies suffer, companies are more selective in their credit purchases. 

Q: How do you help clients in balancing risk and new business development?

SF: We provide the company with an assessment of the risks their own clients present. That is what credit insurance is about. We need to be straightforward with clients when building a plan and credit limit. We guide them through potential risks, including bankruptcy. We want them to grow but also to understand the importance of prevention.

As a credit insurance company, we have a responsibility to assess our client’s market and deliver the right risk assessment of their main customers.

Q: What opportunities do you see in the Mexican market and how do you plan to take advantage of them?

KVL: We will continue to grow our presence given the low penetration of trade credit insurance in Mexico and the size of the economy. How aggressive we will be in 2021 depends on the economic outlook and what happens with the pandemic.

In the medium term, we are planning to launch a simple and efficient credit insurance product. In Mexico, 92 percent of companies are SMEs and yet, we do not have a product for them. Right now, our product is too complex and our service is too expensive for these players. Working with SMEs is a riskier business; it’s almost more of a collection business than insurance. As soon as an invoice is overdue, companies go after the buyer, which means the product needs to be simpler, with lower limits and immediate collections. This also entails being able to visit buyers. We cannot even do that at this moment so it will not happen this year. However, we want to play a useful role in the Mexican economy as a trade credit insurer and I think that is the segment we need to focus on.