Businesses have to make that decision each year to take out all types of insurance policies. It’s a grudge purchase and a big one to your operating costs. Like many, I take the view that apart from it being good business practice, it makes me sleep well at night knowing that my business is protected. The process is arduous and like all policies, littered with pages of fine print. However, we are conditioned to line up each year to pay our premiums on agreed terms and credit limits.

In this instance, I am talking about ‘Trade Credit Insurance’ whereby the agency/business takes an insurance policy out on their clients which is commensurate both on the value of ad spend dollars and the payment terms agreed.  It’s similar to any insurance where you hope you don’t need it but there might just be that rare occasion that you do. It is completely fear-based, but in trade credit, it’s that horrible phone call where a client may cease trading or go into receivership, leaving invoices unpaid and the agency exposed to a large amount owing to the media.

There are only really three to four players in this space that deal with creative and media agencies. The biggest one is a well-known brand and sponsor of sporting teams. The COVID-19 outbreak has caused all businesses to look at their books and forecasts, including the large insurance players.  No doubt they too can see danger and exposure ahead.  

The difference is in what the big insurance company did. In haste, they gathered on emergency status “Defcon 1” at head office. There clearly was some panic and hysteria whipped up by executives locally and overseas. Instead of leading and thinking about long term partnerships with their customers, they focused on “de-risk” even though “risk” is the business we allegedly specialise in.

I can imagine they must have screamed:

“Tell all of our direct clients and all of our brokers that ‘any retail client can’t have credit limits higher than $1m for surely, they are retailers, and all tarred with the same brush.

“Go through the ASX listed companies and check their books. If they have too much debt, zero credit for them like the Soup guy said to Elaine in Seinfeld.

“Any other categories exposed as risky? Cut or halve their credit with no consideration to each individual’s history, ownership or how well their business is going.

“If customers don’t like it, get them to answer three questions for a false appeals process which we will automatically generate as ‘no’ and include comments like  ‘business not considered essential at this time’.

We are all bombarded with advice on how to lead through crisis and recession and thinking about long term for opportunities in the new normal. I can’t help but wonder if this major insurance company has missed that advice? It’s crazy that they can move the goalposts in the middle of the game even though agencies (their clients) paid for premium seats well in advance.

They seem to have forgotten the number one rule in business, the customer and how to communicate to them.  Instead of “we are all in this together” they are more about “how can we protect ourselves?” Limiting the amount of trade credit means agencies are left with no other option than to ask their clients for cash upfront or carry the exposure themselves.  Like businesses aren’t facing enough challenges at the moment.

I am sure when this is all over, many impacted agencies/businesses might just consider the other trade credit insurance companies who were consultative and calm through the process. Thinking about individual needs, not a blanket approach which coincidently has seen them flip flop based on a tirade of negative feedback. In case you are interested, the fine print I mentioned was looked at by an insurance lawyer. I will save you the yawn, but no surprise, it turns out the insurance company is completely within their rights to move the goalposts whenever they like. Typical.