A Safe Harbour in Credit Insurance

By Gerard Gibney

Gerard Gibney, Senior Commercial Underwriter – Credit, recently spoke with Irish Building Magazine to provide his insight into the challenges facing the Irish construction sector.

For the full article, click here.

With its near €30 billion annual contribution to GDP, the construction sector plays a vital role in the wider Irish economy and is one that, to date, has performed remarkably well in the face of the pandemic, supply chain issues and rampant inflation.

However, by January 2023, BNP Paribas Real Estate Ireland’s Construction PMI noted that the sector had experienced three consecutive months of declining activity. The industry is starting to struggle under a myriad of pressures and we’re expecting a large number of insolvencies this year across the Irish economy, and the construction sector is going to be one of the hardest hit. Gerard Gibney, Senior Commercial Underwriter – Credit, Tokio Marine HCC provides Irish building readers with some insight.

As one of the world’s leading credit insurers and a market leader in the provision of surety bonds in Ireland, Tokio Marine HCC has a unique perspective of the insolvency risks embedded within the complex and lengthy construction supply chains. 

And what we are seeing is causing concern.

Material price increases coupled with inflationary pressures are creating a difficult market. Covid loan repayments, reverse VAT and increases in material costs are all contributing to reduced cash balances.

In addition, there are many contractors out there trying to work their way through previously agreed Fixed Price Contracts, often at a loss. Inflation is tearing through building estimates and the ability to work through and move away from these contracts remains critical to the sector.

Unfortunately, the outlook for the rest of year makes for pretty grim reading. Concerns around working capital and funding will continue for the foreseeable future, the scarcity and cost of materials will continue to cause problems and the lack of skilled labour will become a bigger issue over the medium to long term.

But construction firms don’t have to sit back and hope that the wave of insolvencies won’t affect them. There are insurance products available on the market that are designed specifically to protect businesses from insolvency contagion.

In simple terms, credit insurance protects a company against non-payment of trade related debts for sales on credit terms and it covers both insolvencies and companies that are still trading but are in default of their contractual credit terms.

Every single scenario that a contractor could find themselves in, any money they are on the hook for or could be owed, can all be accounted for in their credit insurance. It’s quite a unique product.

It can be very difficult for companies to understand and predict what is happening at any one point in the supply chain. And if even one company is forced to cease trading, that can have a huge knock-on impact all the way up and down the supply chain.

Credit Insurance policies provide financial protection against these risks. Everything from off-site costs and uncertified works on site to alterations of contracts, final account balances and retentions, can be covered as standard.

But more than that, a good credit insurer can provide their clients with crucial business insight into the wider sector, particularly around the financial viability of firms. Because of our scale in credit insurance, we have a high level of management information, providing vital information for our policyholders on their customers.

We assess the financial viability of all their trading partners and continue to monitor them in real time. It gives them access to market knowledge that they might not otherwise have.

Tokio Marine HCC also has a specific credit insurance product called Constructor. It is best in class and has been specifically tailored for the construction industry, where we directly employ quantity surveyors to handle complex construction claims in house.

 The Irish construction sector is headed for some trying times, the data makes that clear. Companies can take the initiative and use support on offer to give themselves the best chance of navigating through challenging market conditions, as well as a competitive advantage over their competitors.