By Karen E. Thuermer, AJOTCompared to the continuously changing and fluctuating world of international trade, insurance looks staid. Yet for companies shipping products globally, some types of trade insurance are must have items. While today’s credit crisis has put a crunch on much business activity and caused many companies to even become stagnant, insurers attest that now is not the time to put trade credit insurance considerations on the back burner. In fact, now might be the best time for shippers to take stock and re-evaluate their international sales terms as credit insurance covering open account sales may no longer be an option. Not only is trade insurance a cost item—and in today’s economy nearly all businesses are scrutinizing every expense—a review of your insurance company’s credit rating is also critical. One only has to recall what happened to AIG to understand the importance of this. “One thing a lot of folks still need to think about is the insurance business is as vulnerable as other companies,” states Rick Bridges, vice president of Roanoke Trade Services, Inc., an affiliate of Watkins Underwriters at Lloyd’s of London and a member of Munich Re. “For that reason, it’s important to look at the insurance company’s rating.” A.M. Best Company, which is like a JD Powers of the insurance world, provides news, ratings and financial data products and services for the insurance industry. Best’s Credit Ratings are independent opinions regarding the creditworthiness of an issuer or debt obligation. “Their ratings offer a good indicator of the financial strength of an insurance company,” Bridges says. Most Fortune 1000 companies require that an insurance company has a rating of A- or better. Anything below that is considered sub par. “There are some companies slipping below that,” Bridges warns. This means that those companies may have less ability to pay back on insurance claims.” Freight forwarders could be especially vulnerable. “If you are a freight forwarder, and your insurance is backed by an A.M. Best rating below A- you might not be able to sell to all the shippers that you would like to,” Bridges contends. “They will be looking at that and say you don’t meet their requirements.” Consequently, it’s doubly important to take stock in what insurance you have. “Pay attention,” Bridges advises. “Look for the best rating. If you are a shipper, revisit your sales terms so you are not caught short. Be proactive with all of your management and credit decisions.” SIGN OF THE TIMES Meanwhile, this economic climate is causing credit insurance companies to pull back on their limits and not offer the coverage they used to offer, particularly for privately held companies—the ones that most want protection. The reason: private companies do not want to reveal their financials. “It’s a double-edged sword,” says Bridges. “But credit insurance companies have no way of knowing if their client’s buyers are running in the black or red.” So what can companies do? Bridges admits there isn’t much since it is difficult for a seller to monitor their buyer closely. “It’s not like the past where open accounts were the quick and normal way of doing business. Now companies may have to retreat to letters of credit, or prepayment or partial payment in advance.” Consequently, Bridges advises companies to take a proactive look at who their buyers are and make strong credit decisions on each buyer. “The biggest situation we see is not necessarily related to credit insurance, but open accounts,” he says. “Here the seller, who allowed the shipment to move on open account basis, say net 30 or 45 day terms, often sees the buyer, who is entrusted to transport the goods, walking away from the transaction when there’s a cargo insurance claim even if the buyer was obligated under the terms of the sale to provide the cargo insurance and did not.” “The buyer says, we have not paid so it’s easy enough to walk away,” Bridges explains. “The goods are