Covid-19 pandemic and its attendant pressure on health infrastructure may not be all that is left to bear at this time, but also that businesses affected by the new normal are defaulting in meeting credit obligations.
This incidentally is falling back on insurance companies that gave credit guarantees for these facilities, as they are currently witnessing unprecedented rise in claims from this area of business.
Credit insurance is an insurance policy and a risk management product offered by private insurance companies to business entities wishing to protect their accounts receivable from loss due to credit risks such as protracted default, insolvency or bankruptcy.
It also pays off an outstanding debt in the event of the policy holder’s death, disability, or termination of employment.
Augustine Ebose, managing director/CEO, Anchor Insurance Company Limited, says the impact of the pandemic on the insurance services could be felt in areas like high claims demand and credit risk exposures from businesses facing possible default.
This has added to numbers of claims being recorded by operating companies at this time, Ebose states, listing other affected areas of insurance to include travel insurance and interruption insurance policies.
He however notes that Nigeria insurers are already aware of this trend, and so have developed and perfected quick ways to pre-empting any challenge the pandemic throws at the businesses this time.
Funmi Babington-Ashaye, managing director/CEO, Risk Analysts Insurance Brokers Limited, who also points out credit default as one the increases at this time of pandemic, says insurers are experiencing rise in claims.
According to Babington-Ashaye, organisations are defaulting in meeting their credit obligations, particularly loans, and this will fall back on insurers that provided default guarantee.
Fitch Ratings, an international credit rating agency, had reported that Nigerian banks’ credit profiles face severe risks from the oil price slump and operating environment disruption due to the coronavirus pandemic.
The ratings agency attributed the lenders’ asset quality deterioration due to high exposures to the oil and gas sector as the biggest threat to ratings.
It noted that the nation’s operating environment risks had been accentuating when oil prices fell, especially when Nigeria crude oil exports represent 95 percent of the country’s export revenue, strongly influencing the broader economy.
The rating agency stated that operating environment risks were compounded by economic and financial market disruption amid measures to counter the pandemic, putting pressure on all borrowers.
There are a variety of credit insurance policies that pay off debts should circumstances arise that prevent the policy holder from paying off the insured debt:
Credit life insurance covers debt in the event of death. In the case of a loan, the policy can repay the capital amount in part or in full.
There is also credit disability insurance, which offers protection against a client’s insolvency caused by an injury or disability.
Unemployment insurance repays debt a client is unable to pay due to an unforeseen job loss.
While credit property insurance provides mortgage protection against costs related to property in the event of death, injury, or unemployment.
Trade credit insurance in the other hand is designed for businesses to protect companies from insolvent customers.
