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Coface: businessmen currently don’t trust anyone

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Coface Latvia sales division head Sandra Smiltniece

Instead of drinking wine with their partners in blind trust, more and more companies are shifting to their transaction risk insurance, basing on facts, as it should be done, Sandra Smiltniece, head of sales division at the risk insurer Coface Latvia, indicates in an interview to the business news portal BNN.

She also notes that forecasts on risk insurance growth reaches 25%, and 2011 is a very active year.

How would you describe the crisis impact on transaction quality and safety? Has it facilitated a more qualitative transaction risk investigation, or on the contrary – spurred inadequate fear and excessive caution?

Currently, it is assumed that the crisis has «started to end». This is evidenced by annual reports indicating better company performance in 2010 than in 2009. Also data on the first half of 2011, received from companies on which we are working more closely, indicate a small growth. Activity increased in production and partner attraction, also solutions are more actively being sought to avoid dramatic losses experienced in the crisis years.

Do you think that the crisis period encouraged of scared away potential business partners?

Companies undergoing the crisis have started to look at how to protect themselves in the future. For example, in the past, talks were held at a table, drinking together wine for ten years. Everything went on well, and everybody were friends. However, it was overlooked whether the business partner had enough money to buy the offered goods, pay in time, not causing a huge chain reaction affecting not just one but several entrepreneurs. Companies suffering from consequences of unsuccessful deals and outstanding payments during the crisis period are now very carefully assessing their partners.

This is one of those elements – business basics – that every company should have. There should be a high-quality credit risk management, no matter if it is a bank wanting to protect itself from losses, or a small or large company. If, for example, I have a loss of 10 000 lats, I have to again turn about 500 000 lats to cover these losses with profit.

Can you mention what is the proportion between insured and uninsured transactions? What is currently affecting it?

Very many companies have introduced risk management systems, namely, credit managers, customer portfolio assessors, credit controllers. The specialty was previously somewhat neglected and was not all that important, because huge emphasis was placed on boosting sales. Consequently, earnings covered losses and were not apparent. But when sales halted, losses grew bigger, prompting the need for credit controller. In this period, the credit controller, accountant, or whatever this post is called at each company, becomes one of the most important people.

For example, we carry out this work for our clients – monitoring their clients, determining the credit limit, possible changes in the company’s management and addresses and, if a company owes a third party abroad. Business partners don’t know such information. Whereas, we have this information, and we pass it to our clients, who can further make decisions.

To cooperate or terminate relations…

Yes, or agree with this client on paying later, which is a common practice at normal economic growth pace. Or to switch to prepaying, which was the only payment method in the post-crisis transactions, because people no longer trust each other.

Reliability should be assessed perceptively, only assessing the facts, without any emotions or feelings of friendship.

Do you think the number of insured transactions will rise this year?

Starting from spring 2010, transaction insurance gained momentum. If the company’s turnover is one million lats and it has ten partners, about 6 000 lats per year are paid for insuring one million. If something happens, the company knows it is insured for 6 000 lats, instead of loosing 10 000 lats. Those surviving the crisis very well understand the benefits of this service. It is like in any other insurance segment.

Business insurance is just as vital, in order not to think about what will happen, but concentrate on how to develop and find new partners, how to work with them, what conditions to set and how to get a possibly larger profit.

As regards figures, we expect that this year the insurance market in our sector will grow 25%. Compared to 2010, which was also a very good year, 2011 is very active.

Is such situation only in Latvia?

Construction sector still has a very cautious assessment worldwide. It is still risky to carry out long-term forecasts on the construction sector’s recovery, but I think that by the end of this year, cautiousness will remain in Latvia.

Have the pre-crisis and post-crisis related industries changed?

Before the crisis, construction and transport sectors were very actively insured, but now these are sectors sliding down from the top positions to the 99th place. Transport sector has seen very big improvements, yet not as large that we could assuredly insure everyone coming to us. We are still carefully evaluating the situation, although not so cautiously as regarding the construction.

Are there many cases where credit limit has not been evaluated, how many are there now?

I can’t say there are many, but there are cases not only in Latvia, but also in other countries. The most large-scale was with Elkor, which was clearly a shock, and makes us responsible as well. It is practically impossible to predict such cases. Also, credit risk insurance is exactly for emergencies. For example, if one wing of the airplane is burning, nobody will insure it. Insurance is designed to enable operating peacefully, and if something unforeseen happens, one can rely that someone has taken upon these risks in their place.

It does not matter whether the company is large or medium, you can never be absolutely sure that unexpected things will not happen. Experience has shown that companies undergoing a crisis not always give up their partners.

Speaking of debt collection area, it is estimated that this niche is now one of the most profitable ones. How do you assess your industry’s development over the past three years?

As soon as the crisis started, everyone had debts. As a result, several persons set up different companies dealing with debt collection. However, it should be noted that knowledge is required for this type of occupation, and this should be done at a professional level. I think the market has ten companies that are seriously dealing with this. While regarding the others we still do not feel the impact of these small companies.

Last year, we increasingly looked at old debt issues, because currently new debts are no longer accumulating.

There is view that Latvia lacks a specific sector for standing out against other Baltic States. How do you assess Latvia’s position in attracting investments and striking deals particularly in the Baltic’s context?

Latvia has many sectors where it is worth investing. It was not surprising that foreign investors were interested in Latvijas Finieris. There is huge interest in such companies. Food industry can also be mentioned, as exports are increasing.

In terms of the insurance business performance in the Baltic States, Estonia’s volumes are slightly smaller, but it is also affected by the market size, since Estonia will never have as big market as Lithuania. It should be noted that in Latvia and Estonia credit insurance is a relatively new product launched only about five years ago. First of all, in Lithuania, the market is bigger. Secondly, Lithuania’s business risk insurance is older than ten years, so the audience knows this niche. While in Latvia and Estonia too much work is invested directly in educating the society, in order to show how credit risk insurance can promote business.

Both experts and the government recognize the capital industry’s importance in the Latvian economic recovery.

In your opinion, what are the positive and negative developments affecting this industry?

We don’t feel much influence from the government, because each company is fighting for itself. Coface also operates at the Export Council, and currently ways to extend the trade missions are being discussed. In my view, the promotion of this mission, which was offered for the government’s review, could positively affect and develop the networking process with countries that have so far been more difficult to reach. For example, trade missions in Kazakhstan, Uzbekistan or the United Arab Emirates. We agree that companies with larger experience in the particular country should be allowed to organize trade missions there. Whereas, if this successful trade mission helps establish contacts turning into new communications and transactions, it will result in a positive balance at the Latvian companies.


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  1. Willy says:

    nice lady.

    Thumb up 0 Thumb down 0

  2. Monkey says:

    I’m not wrhoty to be in the same forum. ROTFL

    Thumb up 0 Thumb down 0

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