With the Australian retail sector taking an enormous hit due to widespread COVID-19 restrictions, several trade credit insurers have concerns of mass insolvencies in the sector.
In view of this, major insurers have stopped issuing new insurance policies for suppliers of department stores Myer and David Jones according to a report from the Sydney Morning Herald.
The five largest providers of trade credit insurance in Australia have started to reduce their exposure to suppliers of these two retailers actively as they are viewed being too risky to continue to insure – revealed insurance brokers to the Age and the Sydney Morning Herald.
Generally, trade credit insurance policies are purchased by suppliers who sell their products to larger buyers such as retailers. The policy protects the supplier in the event that the buyer is unable to pay due to insolvency, defaults or other risks.
Last week, QBE told its suppliers that it would cancel all trade credit insurance cover for Myer and David Jones by 16 July citing concerns over the viability of the department stores.
Four other major insurers in Australia provide trade credit insurance and they are Atradius, The Bond and Credit Co, Coface and Euler Hermes which is owned by Allianz.
None of the four have taken QBE’s approach of cancelling cover entirely, according to brokers speaking to the local publications.
However, each insurer was at different stages of reducing and reviewing its cover for the two specific department stores and the retail sector more broadly. This means that insurers could still cancel policies in upcoming weeks.
Meanwhile, brokers said that some insurers are refusing to extend new cover to suppliers while others are reducing suppliers’ limits.
In a statement, an Allianz spokesperson said it was continuing to support the department store sector and was not reviewing its credit limits currently nor reducing capacity for existing clients in relation to Myer and David Jones.
However, the insurer did not confirm if it had ceased extending new cover to suppliers of the two retailers.