Burkhard Wittgen is a credit insurance specialist and member of the Executive Board at Aon Credit Solutions. In this interview, he talks about the dissolution of the protective shield on June 30, 2021, and the consequences for companies. What should companies do now? Which consulting services are currently more in demand than ever? What does the "average in the Suez Canal" case stand for and why should trade credit insurers urgently create a digital connection to their clients? Learn more!


Mr. Wittgen, you have been a member of the management team at Aon Credit Solutions for two years and are responsible for business development in Germany, strategic key account relationships and digitalization projects. What appeals to you about your job?

I think it's the mix. I started as an account manager at Aon. Many strategic customer relationships that I have had the privilege of building, now span the globe. From DAX-listed corporations to medium-sized family businesses, across a wide range of industries. That makes the work quite varied and interesting.

What gives you the most pleasure personally?

It's a people’s business. Gaining new customers. Building up trusting customer relationships over many years. For me, a project is never finished with the placement or renewal of an insurance policy. It’s quite the opposite. The personal contact with customers and the cooperation with colleagues all over the world is very appealing.

What does Aon Credit Solutions focus on as a trade credit insurance broker?

On the hedging of a company's trade receivables. Based on this, the appropriate solutions for risk transfer are selected. The actual work therefore consists of analysis and consulting. The absolute prerequisite for this is always an understanding of the risks and the risk philosophy of the individual company.

What are these risks? Is there a typical?

Every company has trade receivables. A service is provided or goods are delivered, but not paid for immediately. The customers first receive an invoice and can then pay after 30, 60 or even 360 days, depending on the agreement. The company providing the service is then naturally exposed to a risk. If the customer cannot pay, credit insurance kicks in.

How can companies avoid such default risks?

Of course, it helps if companies know their business partners well. The credit insurer checks business partners to see whether they have liquidity and are trustworthy or not. That's part of the job. If companies are in good shape, trade credit insurers draw so-called "credit insurance limits" on the individual buyers. This insures them. In traditional trade credit insurance, the insurer has the right at any time to cancel or reduce the limits for future deliveries and services in the event of a deterioration in creditworthiness. For this reason, alternative credit insurance concepts such as Excess-of-Loss (XoL) with non-cancelable limits for twelve months are increasingly coming into focus.

You mentioned that trade credit insurers set limits and evaluate potential business partners or companies. How does that work?

Via global databases in which all companies are recorded. A lot is digitized, companies' balance sheets are automatically recorded. And so are payment histories. Policyholders have to report when their customers don't pay on time. This means that the credit insurer has a superb worldwide monitoring network, recognizes where creditworthiness difficulties occur and can react accordingly.

When you look back over the last few years: What has changed fundamentally in the industry? Are there any interesting developments?

In the past, credit insurance was often bought selectively by companies operating internationally. One country would buy a policy from X, the other from Y. There was nothing coordinated about it. This meant that companies could not use their purchasing power to get the best possible deal on the market. However, there are now international program solutions that allow credit insurance policies to be negotiated centrally and implemented locally at the same time. Furthermore, credit insurance programs enable daily analysis of a company's accumulation of risks vis-à-vis groups of buyers and their coverage ratios.

What specific insurance policies are currently in particular demand and how is Aon responding to them?

Limit optimization is the order of the day for us. If limits are reduced, regular limit negotiations with the credit insurer and our customers or even additional capacity providers are required, as well as top-up policies. A second credit insurer facilitates risk management by spreading the risks over more partners and providing the best possible coverage for companies.

Is there a consulting service that has become even more important since the pandemic?

Yes, the issue of financing. Currently there are many active government aid programs flooding an extremely large amount of money into the market. But even these are finite. To improve their liquidity situation in the future, companies can also sell their credit-insured receivables and generate liquidity immediately. After all, as soon as companies get back into growth mode, they will need to invest again. But if bank lines are rigid and lending becomes more restrictive, investment will not be possible to the desired extent. A diversified financing mix is therefore essential.

What do you advise?

The higher the amount of receivables, the higher the liquidity through the sale of receivables. Factoring and also surety insurance create financial leeway. In surety insurance, too, companies take advantage of their own good credit standing to replace bank guarantees with sureties from the credit and surety insurance market. This means that the bank guarantees no longer block the financing lines with the financing banks and they are given more flexibility. Of course, this is important to emerge stronger from the crisis.

To stabilize supply chains and the flow of goods, the German government and trade credit insurers set up a joint protective umbrella just over a year ago. What has it achieved?

A lot of security. When Corona broke out and the first lockdown came, there was a panic that the economy would collapse, business would stop and one company would go bankrupt after another. Because of the protective umbrella, credit insurers were able to keep some of their limits at a high level. This has prevented a dreaded domino effect, because: If customers had their limits cut and were no longer insured, they might switch to prepayment. Or they might not deliver at all. The effect of this would have been fatal. Customers or buyers would have been even more likely to get into difficulties.

How did you experience this phase with your customers?

It was challenging to talk to them about the limits. We reviewed together which customers had limits that were no longer needed in order to return coverage to the market. The risk dialog also consisted of reallocating the capacities in a sensible way and really having them where they were needed.

Now the protective shield will be dissolved on June 30. Did you expect this?

There was discussion between the federal government and credit insurers to extend it again. But the big wave of insolvencies has so far failed to materialize. The credit insurers expect it to be spread over the next few years. Extending the protective shield for another six months would no longer have made sense for the credit insurers in this form. They had to give up, I think, over 60% of their premium to the federal government. And they decided to go back to self-assessment and to financial communication with their own customers.

Have you received any panicked requests from companies that were expecting the shelter to be extended?

It's always a bad thing if the customers get in touch first. In risk consulting, we prepare our customers for this early on. At the end of last year, we asked them to look at their customers, check their limits and work out with their sales department where cover is really needed. With insolvencies on the rise, it will be harder to get enough coverage. Companies should really take a hard look at where they can give something back to the credit insurer and where they might need higher limits.

Can you give a concrete example of this, perhaps from the automotive industry?

Sure, this is an industry that is currently undergoing a major transformation. E-mobility will change many production processes. Automotive suppliers that were focused on parts for combustion engines will receive fewer orders and thus also a lower sales volume. On the other hand, other companies will come onto the market with new parts and services that are needed, and they will also have full order books and high limit requirements of their own.

What do you recommend in this case?

A reallocation of limits: return limits that are no longer needed in the amount and use them in negotiations with credit insurers to obtain higher limits in growth areas.

How can companies that have credit insurance still prepare for the period starting July 1?

I think companies that are insured will look at their relationship with their provider and also how they behaved during the crisis. The market is an oligopoly, but if the partner doesn't perform, it makes sense to be consistent and put the issue out to tender in the next renewal. This is important to send a signal to the insurance market: good performance in times of crisis is rewarded. Bad ones are not. This is the only way for trade credit insurers to improve as well. For larger companies, one can consider whether to continue to rely one partner or whether a syndication solution, i.e. a multi-insurer strategy with two or three insurers, makes more sense.

Which is the smarter way?

There is no 'one fits all' solution. It always depends on how the company is set up. Companies with their own strong accounts receivable management, for example, only need credit insurance for defaults that threaten their balance sheet. This is a 'kind of excess of loss' credit insurance: Here, the accounts receivable management is insured and most of the limits are defined on the basis of the company's own credit management guidelines.

What has to be in place by June 30 - no matter what?

If you want to emerge successfully from the crisis, communication and the exchange of information are the be-all and end-all. We advise our customers to enter into proactive dialog with credit insurers together with us. Positive payment experience and well-filled order books with customers can convince credit insurers to issue even more difficult covers.

What other recommendations do you have for companies?

Being prepared for the 'worst case' and having different possible solutions at the ready is better than being too dependent. That can become a danger. It can also make sense to have a second credit insurer on board or a top-up insurer. This insurer steps in if the primary insurer does not take over the entire risk. Syndication is also a good idea when companies have many large customers with large limits and the insurers find it difficult to underwrite the limits on their own.

You must have also followed the case of the Suez Canal accident. What do you think it stands for and what do we learn from it?

I think all companies have noticed that we do not live in a low-risk environment. Things can go bang from one moment to the next. That companies like Lufthansa have to be rescued by the state. That a single tanker blocks one of the most important logistics lines in the global economy, deliveries stagnate, companies can neither finish nor sell their goods, wait longer for funds and thus get into difficulties: The Suez Canal accident represents how a single event can affect the entire global economy. And everything that influences the global economy also influences the creditworthiness of companies.

Which brings us directly back to the topic of trade credit insurance.

Exactly, because if the creditworthiness of companies deteriorates, there is a risk that others will get into difficulties as a result. That's where credit insurance makes sense, of course.

Do you think the role of trade credit insurers will change in the future - especially with the pandemic?

Yes, digitization is an important driver here. For example, in Germany alone, credit insurers have issued 420 billion euros in cover. Due to regulatory requirements, these limits and risks must be backed by equity. The problem is that only a portion of these 420 billion euros is actually used in day-to-day business. Experience shows that customers apply for significantly higher limits on their customers than they actually need. Or they supply their customers only once a year and the limit is still in the system the whole time. But no one recognizes this because the systems are not linked. This is where digitization comes into play.


Meaning: If the crisis lasts longer, the probabilities of default will increase further. Then the credit insurance market will have to reduce its exposure - the 420 billion in Germany alone - to keep an eye on the cost of equity. A digital link would obviously indicate where reducing the limit makes sense and where it doesn't. That's why we at Aon are deliberately investing in connecting policyholders' ERP systems to credit insurers. The goal is to automate the entire handling of credit insurance.

Sounds exciting. Finally, a look into the future: What will credit insurance look like in five years?

Digitization will continue to gain momentum and of course also change payment processes in the B2B sector. On a small scale, we already know this from Klarna or PayPal: Here, we as customers can decide when we pay for goods or services. Large technology groups are using the resulting data to offer insurance solutions or payment terms. I am curious to see to what extent these large technology groups will move into the area of B2B payments and make one or the other trade credit insurer obsolete through digital solutions. They are easy to integrate into companies' new types of business processes. It will be exciting to see how trade credit insurers themselves adapt to this digital challenge. And that is precisely why it is so important that they create the digital connection: to stay relevant!

Thank you very much for the insightful interview, Mr. Wittgen.


What questions do you have about credit insurance? You can also get concrete recommendations for action in the interview on the topic: "Protection against the bankruptcy of others: Is it possible? And if so, how?" with our enomyc partner Dr. Reiner Winkelbauer. As a blogpost to read or also directly into your ear in the enomyc podcast. We look forward to your feedback!

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