This year has already witnessed some historic political events and European companies should be prepared for even more turbulence as Eurozone countries struggle to deal with not only having lost independent monetary policy, but also the ability to devalue their way to growth.

However, looking at this situation in a positive light, which is what all managers should do, crises should be viewed as a new opportunity to start afresh, but with more intelligence. We can't just stop taking risks, as without risk there is little chance of creating value. Every day managers within organisations with a risk appetite culture have to conduct financial analysis that takes into account concerns about economic risk and financial risk.

Increased credit
In addition, there is the potential of increased levels of credit between companies caused by globalisation and the need to enter markets abroad even during or because of a crisis. But credit also means assuming an additional risk. And it is in key moments such as the present one that those that really need to correctly select the risks to be assumed by their company require the support of a professional risk analysis team. As a result much of this work is increasingly being delegated to external experts who analyse and approve inherent risk, namely in context of credit insurance subscription.

But why should these risk takers even contemplate purchasing cover to protect their bets? Put simply, credit insurance guarantees the credit transactions between companies whenever the credit threshold is validated by the insurer's risk analyst. It covers cases of the buyer's insolvency, such as scenarios in which companies do not have the capability to honour their payment commitment on time or in case of bankruptcy.

"Crises should be viewed as a new opportunity to start afresh, but with more intelligence."

Not bound by limits
But the benefits it can offer to clients are not limited to indemnification. When well executed, the service provided by credit insurers can create considerable added value for companies. It supplies managers with important information and support regarding the target market to penetrate, it provides an objective credit analysis of the client company and monitors the client's portfolio covered by the policy, which can alert the client in case of financial impairment.

Credit insurance also enhances company's probability to get paid insofar as credit insurance companies enjoy a much stronger negotiating power over non-paying clients. Furthermore, it also filters and solves situations of attempted use of dispute credit which led to the third party to not make payment, and it certainly manages the indemnification process.

Alarm bells
With this in mind it is no surprise businesses operating within the troubled Eurozone have increasingly turned to this form of protection. In fact, the world crisis rang alarm bells for many companies and the demand for credit insurance flared worldwide. This rise in demand, however, raises several questions that need to be answered.

On one hand, there is the question of knowing how credit insurers are responding to this increased demand. Not surprisingly, insurers are assuming a more selective approach as they know that some companies are now seeking short-term credit insurance solutions as a final salvation from an uncertain or even catastrophic scenario. In turn, insurers view credit insurance as a long-term risk partnership that has to be consolidated through a relationship of trust that matures over time. Once initiated, such a relationship leads to the insurer working closely with their client through difficult risk points. This is clearly something that cannot happen unless knowledge and experience has been accumulated.

"Not surprisingly, insurers are assuming a more selective approach."

Strict austerity
On the other hand, it is also interesting to consider how the present economic situation across Europe affects the credit insurance offer. The current sovereign debt crisis effecting Southern European countries - mainly Greece, Portugal, Spain and Italy - is forcing them to impose strict austerity measures that hinder economic growth. At the same time, Germany and surrounding countries are showing impressive economic strength. This dual behaviour is straining European cohesion and risks Euro sustainability.

Credit insurers are reacting to this situation by restricting credit limits for buyers in stressed countries, while softening their attitude towards the countries perceived to be in better shape. While this policy change may be justified by lower demand from Southern European countries, it punishes excellent creditworthy buyers located in stressed countries.

Global approach
This global approach from credit insurers is a consequence of the creation of a few multinational groups that resulted from the acquisition wave of national players, which occurred in the last decade. The gain from scale has brought a loss of local focus. As a result, in this new environment, small and stressed countries, like Portugal, tend to get rough treatment from credit insurers, regardless from the creditworthiness of the buyer.

While it is obvious to all that the trading environment across the Eurozone in 2011 is challenging, companies still have to trade and take risks. Credit insurance, while still playing a key role in providing protection, saving businesses and safeguarding jobs, should not be viewed as the easy option. With new approaches being applied by insurers every day it is more critical than ever that those in need seek the support of European and even global broking experts that can monitor this new financial reality and present deliverable and cost effective options.

Overall, the credit insurance market is still open for business across the Eurozone, but those that will benefit most are the companies that view the cover as a long-term solution and not just a knee jerk reaction to the current crisis.

Marcos Polónia is credit and financial risks managing director at MDS SA (Portugal).