Assessing the financial symptoms of the Coronavirus reaction
For many businesses the outcome of the media reaction to the Coronavirus outbreak has become a bigger threat than the virus itself. It has been hard to avoid the media saturation of fears versus fiction, and financial markets have suffered losses across the globe as a result.
The credit insurance sector is sure to suffer, with firms like Allianz suggesting the biggest potential risk is a swathe of bankruptcies in Europe as a knock-on effect of a slowing economy and lag in consumer spending. This means companies will be calling on their trade credit insurance policies to pay out if their customers’ businesses fail. While the initial exposure is highest in Asia, he impacts will also be felt closer to home.
Already we’re seeing panic buying in shops and early impacts on industries such as travel and tourism, restaurants and theatres, sports events and shopping centres. Despite the virus being of unknown proportions and unknown impact, human nature is such that people are changing travel plans and staying away from public events. Schools are closing, and A&E departments are filling up. This behaviour is already predicted to cost Italy about €10bn in lost tourism revenue alone – but what does that mean for exporters to Italian companies? As Italian business feels the pinch there is a risk of unfulfilled orders as well as unpaid debts.
Supply chains are being heavily disrupted in China, where we are seeing delays and cancellations of components, tools and products bound for UK manufacturers – impacting our home production capability. As the virus spreads, how might this impact supply chains to the UK from other countries?
Much of the fear is circumstantial, although there is a real fear of disruption being of literally epidemic proportions. And the effects on markets, production and staffing are already being felt. How do companies factor in these unknowns in their credit risk assessment for their customers? How can you “stress test” a company’s financial position and resilience?
If your company has credit insurance, then the insurers are working on these challenges all the time.
If you’re not credit insured, taking account of such unknowns into your decision making is a more difficult task – and one that self-isolation and handwashing will not be able to help with.