Insurers get tough on IT

Insurers are turning their attention to the IT channel and becoming stricter with distributors and resellers taking out insurance policies.

Michael Woodward, divisional manager, trade credit at insurance broker Aon, said although prices have come down, insurers are being firmer when it comes to insuring distributors that have had a continual string of losses.

As an example, Woodward said if a distributor was making 7 percent margin and it incurs a $100,000 bad debt, its net profit is effectively reduced by $100,000. "They need to [make] an extra $1.4 million in sales to make up for the bad debt," he said.

Hugh Evans, managing director at channel credit provider MoneyTech, said the problem was if you get the big guys like Synnex not insuring and incurring big knocks, then the smaller guys are even less likely to insure.
"A lot of companies don't want to get insurance at the level they do business at."

Smaller distributors look at what it costs for them to collect the product, then to process it, send the product and finally chase the reseller for payment, Evans said. "Insurance is not worth it when the margins on these products are around $1 to $2," he said.

Woodward believes there are three key factors that impact on insurance for distributors - credit management, information and the use of a trade credit insurance broker.

Distributors that invest in stronger credit management tend to get greater support from the trade credit insurance market, and open communication with major resellers will provide better support of a reseller's credit limits, Woodward said.

This is due to the fact that the insurer has better access to information on resellers and therefore has better information to support reseller's insured credit limits, said Woodward.

Woodward also said those that do obtain a personal guarantee are likely to be rewarded with better premiums. "A tighter insurance market will mean increased insurance premiums for distributors and reduced credit limits on their major customers and this could lead to restricted sales," he said.