Marsh Urges ‘Smarter Risk Management’ to Beat Credit Crunch

October 14, 2008

A new briefing paper from Marsh shows how insurance and risk management strategies can help UK firms improve liquidity, free up cash, strengthen their financial resilience and continue operating profitably during deteriorating economic conditions.

Marsh said its “newly published executive briefing, Improving Working Capital and Business Resilience,” explains how organizations can release working capital by reducing their insurance and risk costs, while managing changing risk factors such as supplier liquidity, customer default and increasing production and transportation overheads.

Martin South, CEO of Marsh Ltd., explained: “Most businesses are only too aware that high prices for fuel, food and commodities are creating significant upward pricing pressures, while at the same time the global credit crunch is producing downward pressure on demand.

“Businesses should welcome the news that there are some simple actions that can be taken around insurance and risk management. These can free up cash for use in the business. Insurance can also be used as an additional security to facilitate either greater borrowing or cheaper cost of borrowing, or as a solution to offset liability on the balance sheet.”

Marsh gave the following recommendations:
— Manage insurance costs to create additional working capital: The cost of insurance should not be viewed as a written-off commodity spend but managed to create additional working capital. Marsh recommends firms review how much risk they retain and how much insurance they buy, taking account of the likely loss profile of the business and the appetite for retaining risk. Such a review may help to release working capital that would otherwise be tied up in insurance, whilst ensuring that proper protection is in place at times when margins may be squeezed.
— Maximize the value of trade credit insurance: Trade credit insurance can offer excellent value in times of economic uncertainty, providing protection against the growing risk of bad debts. This insurance provides companies with an additional security across their book of debts. By assigning the policy to a financial institution, accounts receivable become a more acceptable asset, securing either greater borrowing or a cheaper cost of borrowing.
— Pay insurance premiums by installments: By spreading payment, businesses can typically free up cash for use elsewhere in their operations.
— Consider other forms of insurance: Marsh recommends that firms review any liabilities that may be on the balance sheet, for example environmental, historic disease or contractual liabilities. Insurance solutions or contract renegotiation may mitigate or transfer some or all of these risks and potentially free up working capital. Surety bonds can also free up credit capacity.
— Build business resilience: Volatile economic conditions can change areas and levels of risk rapidly and firms may now be exposed to risks that were previously not of concern. Marsh strongly recommends that businesses review their risk exposures, assess their potential impact and put in place robust business contingency plans.

The bulletin added “present economic conditions make it critical that companies maintain their credit rating and therefore access to funds. Standard & Poor’s has recently indicated that they will begin incorporating consideration of the strength of enterprise risk management practices as a component of their credit ratings methodology. This is yet another incentive for ensuring that a company’s approach to risk management is robust, capable of being articulated and will stand up to scrutiny.”

Companies wishing to obtain a copy of Marsh’s report can visit

Source: Marsh – as above or

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