The credit exposure provided by major insurers is 20% higher than pre-pandemic levels, highlighting the significant role of credit solutions in maintaining stability and fostering company growth. The data emphasize the need for adaptation and search for credit solutions in a continuously changing economic landscape, according to a recent Aon global study "Credit Solutions: Q1 2023 Market Insights Report".
Preliminary financial results from major credit insurers indicate a shifting trend in 2022, following the COVID-19 period characterized by unusually low loss levels. Insurers have experienced global revenue growth of over 15%, reflecting both increased customer activity after the pandemic and inflationary pressures. Covered exposure levels have increased throughout the quarters of 2022, while global insolvencies have seen a +10% growth throughout the year, leading to higher loss and combined ratios. These rates are starting to return to typical ranges for the industry but remain below the 2019 levels.
Operational results for insurers in 2022 remain positive, but a downward quarterly trend is observed. While a continuation of the normalization trend in loss ratios is expected with the inevitable return of insolvencies in the economic cycle, the impact and timing remain uncertain. Variations and revisions in the global economic outlook mean that this normalization will occur at different speeds and times across countries and industries. Credit insurers continue to adopt a pragmatic approach in their business and risk management strategies while maintaining a high level of client portfolio retention.
"The global economic outlook remains uncertain for 2023. In addition to geopolitical factors and bank insolvencies, inflation represents the main source of concern, with a significant impact on the global economic scenario. With the current global inflation rate at 8%, central banks are keeping interest rates high to control it, but these rates are expected to decrease to 3% as inflation recedes", stated Oliver Henderson, Chief Broking Officer, Aon Credit Solutions Department.
According to the Aon study, global approval rates for commercial credit limits have experienced significant fluctuations in recent years. In 2022, approval rates for credit limits saw declines in various industries: agribusiness (-3%), wholesale/retail (-10%), food and beverages (-13%), automotive industry (-3% quarterly and -8% compared to the previous year), and technology industry (-4%). In the last quarter of 2022, approval rates for the construction sector decreased from 75% to 68% compared to the same period in the previous year.
Compared to previous years, the global approval rate for credit limits decreased from 79% in December 2021 to 75% in December 2022. The data highlights increased concerns regarding access to commercial credit and potential difficulties faced by companies in obtaining it. Commercial credit solutions are essential for risk management and financial stability.
The approved total exposure by major insurers is 20% higher than pre-pandemic levels, as insurers' appetite and capacity have continued to grow to meet the needs of customers driven by higher trading volumes, increased commodity prices, and inflationary effects. Signs were observed that towards the end of 2022, this trend of exposure growth began to slow down as insurers prepare for a return to more normal underwriting conditions, reflecting the uncertainty of the economic outlook and associated challenges. This growth in exposure may continue in 2023 at a reduced rate, but there will be divergent sectoral and regional approaches that will adapt based on contextual realities. At the same time, the market as a whole continues to innovate through new specialized offerings and the addition of new participants providing complementary capacity for more complex and larger risk exposures.
"Commercial credit plays a crucial role in enabling businesses to expand into new market sectors or develop product lines, serving as a valuable instrument. Aon supports companies in finding solutions that facilitate consistent operational growth by providing access to market context information, client solvency, and recovery of unpaid amounts in case of prolonged payment delays. Companies opting for commercial credit insurance operate in industries such as construction, energy, consumer goods, or pharmaceuticals, as they entail higher levels of exposure and, consequently, risk", stated Eugen Anicescu, CEO of Aon Romania.
In the current economic context, sales growth combined with strengthened financial capacities are prioritized. Commercial credit solutions offer effective strategies to address challenges faced by companies. Protecting cash flows through commercial credit solutions reduces risks associated with contract breaches or non-payment, ensuring a steady stream of revenue and maintaining financial stability throughout the partnership. Supporting supply chain resilience through insurance minimizes performance risks within the chain, ensuring operational continuity, optimizing efficiency, and reducing disruptions.
"Credit exposure is at historically high levels but is stabilizing, reflecting existing economic pressures. Approval rates have decreased compared to the previous year, influenced by economic pressures such as supply shocks, inflation, interest rates, or the current geopolitical context impacting companies' balance sheets, with sector-specific declines. Now more than ever, commercial credit is the primary source of funding for business activities on the local market, highlighting the need for credit insurance solutions", Eugen Anicescu, CEO of Aon Romania summed up.
In recent years, there has been a noticeable rise in concern for the health and wellbeing of employees. Global studies carried out by Aon demonstrated that the approach had a favorable effect on staff performance and job satisfaction.
According to the Global Wellbeing Survey Report for 2022–2023, employees who participate in workplace wellness initiatives are up to 70% less likely to look for new employment. Additionally, 83% of the organizations surveyed globally have established a well-being strategy, which is a 28 percent increase from 2020. The financial and professional component is given the most attention in-company programs in this area (54%), followed by the emotional (51%), physical (50%), and social (47%).
“This year, 67% of the companies have well-being strategies already implemented, with 4 percent more than the previous year. Interesting to note is that companies’ priorities changed. If last year, after the COVID-19 pandemic, emotional well-being was the main priority, this year, the focus is on the work-life balance. Financial wellbeing is the less addressed by Romanian companies”, Armina Dobrică, Senior Consultant, Wellbeing & Culture at Aon Romania, recently declared.
Aon Romania conducted a survey based on a questionnaire applied to 106 companies in areas such as IT, manufacturing, retail, telecommunications, finance, construction, automotive, or agriculture. Of these, 24% of companies have under 50 employees, 22% between 251 - 500, followed by companies with resources between 101 - 250, 21%, and over 1001, 18%.
Among the companies questioned, 92% provide employees with private medical benefits, covering services such as medical tests, consultations, and X-rays. The price for these benefits is the same for all employees for 87% of the companies, varying from 600 RON per employee to over 3000 RON.
“Considering the market median, the deductibility limit is around 400 euros, but we already see many companies that exceed this amount. It comes from the need to keep this benefit as high as possible. Employees believe that the medical benefit is the most important, an aspect also reinforced by field studies showing that it is in the top 3 in employee preferences. We also see a paradigm shift in employee benefits in that all seniority levels enjoy the same benefits. We believe that the flattening of this trend is encouraged by the actions of inclusion and diversity”, Adrian Low-Vesa, Director of Health & Benefits Practice Aon România, added.
Besides medical services, the strategies for employee well-being include multiple services and programs aimed at increasing employee efficiency, retention, and satisfaction. Among them is the possibility to work remotely or hybrid, with a degree of adoption among 92% of the companies, vouchers, extra vacation days, the possibility of sabbatical leave, travel insurance, access to educational courses, and cultural activities.
“Employee Assistance Programs had increased during the pandemic when companies began to offer employees access to psychological consultations for emotional stability. As important as financial stability. Considering our country's low level of financial education, I believe that organizations could become promoters for more effective personal financial planning. A private pension plan started very early in life makes retirement much more comfortable", declares Armina Dobrică, Senior Consultant, Wellbeing & Culture Aon Romania. "The percentage increases yearly, but there is no effervescence in this sense. Companies are looking to invest in tangible solutions like medical coverage that can be accessed easily and quickly. The private pension is a long-term benefit, the results of which are seen quite late", Low-Vesa also mentioned.
The survey findings on employee perks in Romania were released by Aon Romania on June 14 during the HR Breakfast event. The speakers—Adrian Low-Vesa, Director of Health & Benefits Practice, and Armina Dobrică, Senior Consultant, wellness & Culture—discussed the key trends in HR for the sector as well as the extent to which employee benefits and wellness programs are being adopted by Romanian businesses.
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