Managing Tariff Risk Through Trade Credit Insurance

According to an article by Russ Banham in Risk Management Magazine, escalating US tariffs are pressuring companies’ margins, cash flow, and credit exposure, creating a clear tariff risk that demands closer attention from risk professionals. 

Banham reports that higher sourcing costs and unpredictable tariff shifts have strained buyers’ liquidity, exposing sellers to delayed payments, defaults, and, in severe cases, potential insolvency. He notes that experts like Jerry Paulson at HUB International view trade credit insurance as a core tool for absorbing losses from unpaid invoices and stabilizing cash flow amid tariff volatility. Although only a fraction of global trade is insured, Banham cites WTW’s Ian Watts, who argues that open-account transactions make this protection increasingly relevant.

Reflecting on the tight market conditions during COVID-19, there were significant claim spikes reported by Allianz Trade, alongside rate hikes and capacity reductions noted by former Coface underwriter Sam Rodda. In Europe, government interventions helped maintain credit flow, whereas the United States did not implement a similar program. Additionally, Banham points out that today’s instability largely arises from President Trump’s fluctuating tariff policies, which have increased costs, disrupted supply chains, and heightened insolvency risks. Data from a KPMG survey highlighted by the author emphasizes the ongoing margin pressure that companies are experiencing.

Despite this environment, the trade credit market remains soft, with competitive pricing and strong capacity, according to insights from Allianz Trade’s Sarah Murrow and others. Still, Banham relays concerns from experts such as Julie Potter of EDC that heightened tariffs may eventually drive up losses and tighten underwriting.

For risk managers, tariff risk is not retreating, and the current soft market offers a favorable window to secure coverage before conditions potentially harden.