People have been selling goods and services on credit since ancient times, and it’s long been common outside the United States for businesses to take out insurance to protect themselves when customers fail to pay.
But recently U.S. businesses have shown renewed interest in buying such policies, known as “trade credit insurance,” said James Daly, CEO of Owings Mills-based Euler Hermes North American.
U.S.-based companies, unlike European counterparts, often rely on bad debt reserves to cover times when trade customers leave them in the lurch.
“That’s a really bad use of capital,” Daly said. “You could be using that capital to open more branches, hire more people, improve your factory, that’s where we come in.”
If a company isn’t paid after typically a 30-to-90-day period, “we will pay that debt for you…,” he said. “It provides companies with protection on cash flow and on accounts receivables, often the largest asset on a company’s balance sheet.”
The insurance company, founded in St. Louis, sold its first trade credit policy 125 years ago when railroad shipping helped expand trade around the country. The insurer moved its corporate office to Pratt Street in 1940 to be closer to customers who shipped out of Baltimore’s busy port. At the time, it was called American Credit Indemnity. It now has 220 employees at its Owings Mills headquarters, with a total of 460 throughout North America.
In Europe, about 15 percent of goods-providing companies rely on trade credit insurance, compared with about 3 to 4 percent in the U.S., he said. But Euler Hermes’ U.S. business is growing, with sales up 15 percent this year.
“The growth is driven by the fact that there’s a lot of uncertainty in the world and a lot of uncertainty in trade, particularly international trade,” Daly said. “The product is starting to become more familiar.”
An Irish citizen, Daly ended up in insurance through a circuitous route. A fan since childhood of the research of conservationist and scientist Jacques-Yves Cousteau, Daly studied marine biology at the University of London. In his 20s, he played professional rugby for the London Irish.
After graduation, finding little opportunity in marine biology, he took a job with Ford Motor Co. in London, building leasing programs for dealerships. He also has worked as a consultant to the automotive industry, as a fleet services director for an auto leasing firm and as a director of a Hertz leasing business in the United Kingdom.
He joined Euler Hermes Group, the French holding company of Euler Hermes North America, 15 years ago. He has served as CEO of the North American company for the past four years, moving up from head of sales and distribution.
Customers include retailers, manufacturers, construction firms, pharmaceutical companies, consumer electronics makers and others. Most are U.S.-based, with about 35 percent having global operations.
The insurer helps companies assess proper levels of credit for specific customers, minimizing risk, Daly said.