A guarantee is a product that actually consists of two layers. The financial institution issuing the guarantee examines the company. Among other things, it looks at:
- Annual figures
- Forecast
- Strategy
- Position of the company in the market
- Order book (where applicable), customer base
- Method of financing the company
Based on this, a guarantee facility is agreed, under which one or more guarantees can be issued. Under this guarantee facility, the customer submits applications and the insurer will look at the underlying obligation or project and agree on what they want to give the guarantee for. And for that guarantee, of course, the company pays a premium. Large companies may have large numbers of guarantees, from multiple parties. Those parties may together guarantee tens or hundreds of millions of euros. Both insurers and banks provide guarantees.
Is there a difference between bank and insurer?
There is no difference in the guarantees themselves, but rather in the way they work. Whereas in banks the work is segmented, insurers, with mostly smaller teams, fill in everything themselves. From credit analysis and documentation to the actual guarantee. The processes are designed to be fast. The turnaround time is therefore short, which can be crucial for companies in their operations. With standard guarantee requests, at Zurich Benelux it is ‘ask today, get it done tomorrow’. And with customisation, it might take a bit longer, but it's still very fast turnaround. You can see insurers and banks as competitors where guarantees are concerned, but in practice they are increasingly equal partners. And that is best for customers. Banks serve a large part of the guarantee market and will continue to do so. At the same time, we see a shift and increasing cooperation.
Opportunities for businesses
Insurers have moved closer and closer to banks in recent years. They offer similar deals, have gained more bargaining power and longer maturities. Insurers also often provide ‘backstop’ for banks offering guarantees. They help banks, so to speak, if the bank cannot provide the guarantee in full. And while guarantees now play a role with insurers particularly in the construction sector, there are also opportunities for other sectors. For the manufacturing, maritime and logistics sectors, for example. And what about the defence industry. There are lots of machine builders in the Netherlands who can suddenly have a large warranty requirement from one day to the next. These are physical products with often expensive parts. We have a lot of these wonderful companies in the Netherlands that you don't actually hear much about. Banks and also brokers are needed, because they are both finely-meshed in that world. Guarantees provide opportunities. Also for SMEs, although that will be quite a task. It is currently still difficult for smaller companies with a need of EUR 1 or 1.5 million to get guarantees. That needs to be resolved, which is also good for our economy. Insurers want more market share, banks have several products linked to credit risk and are therefore more vulnerable to economic fluctuations. Insurers absorb that in the mix with products that are less sensitive to the state of the economy.
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