Business credit insurers are yanking cover, demanding higher premiums in SA

Business Insider SA
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  • The insurers covering credit it extends to customers have cut their exposure, demanded higher premiums, and withdrawn insurance in some cases, electrical wholesaler ARB Holdings reported on Thursday.
  • The company has a heavy exposure to the construction sector.
  • Credit insurers and their customers typically don't share much detailed numbers, but provisions for bad debt in the consumer market spiked hugely in 2020. 
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Buying insurance against customers failing to pay their debts is getting tougher, electrical wholesaler ARB Holdings told shareholders on Thursday – and expensive.

In a rare glimpse into the business credit insurance market, ARB said cover on many of its customers had been reduced form 90% to 75%, as part of a general reduction in exposure by insurers.

The company owns a 20-branch electrical wholesale chain, and the Eurolux lighting brand, and its customer base is heavily biased towards the construction sector.

ARB described a "hardening of the credit insurance market" and "reluctance of credit insurers to grant sufficient cover to meet the anticipated increased exposure that will arise on normal supplies to customers".

On top of reduced cover limits, ARB said, it was seeing a demand for higher premiums and increases in co-insurance levels.

It warned that its own revenue generation could be hampered as it, in turn, limits credit exposure.

Business credit insurance companies and their customers rarely release detailed information on changes in the market, but regulatory filings from banks and other credit providers showed worries about bad debt during 2020. 

On a consumer level, arrears debt data suggests South Africans may have been prioritising payments on credit cards, to keep them in use, while falling behind in other debt. A report from TransUnion in December showed that a third of clothing account holders had fallen behind on three or more payments by the third quarter of the year, while almost a third of non-bank personal loans were behind on three months of payments, or more.

See also | Shocking debt data shows third of clothing accounts now three or more payments behind

Banks were forced into massive increases in their provisions for bad debts in 2020, thanks to tough accounting requirements.

Though losses may not materialise, Absa's charge on home loan impairments increased by more than 1,000% in the six months to the end of June 2020, and its vehicle and asset impairments was up nearly 300%.

(Compiled by Phillip de Wet)

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