XL Catlin market research identifies significant potential for credit insurance growth

Peter Schmidt, Chief Executive Asia Pacific, Latin America & Global Credit and Surety, XL Catlin speaks about the growth in the credit insurance market.

Credit insurance is an important 'lubricant' to ensure the smooth functioning of domestic and international commerce. As such, it continues to grow in relevance as policyholders look to protect themselves against economic and political uncertainty.

Traditionally, credit insurance has been used by organisations to protect their balance sheets against the threat of a default on their trade receivables. While this is still the predominant case, it is increasingly used as a proxy for a financial guarantee to enable policyholders to gain access to bank lending and optimise their working capital needs. Furthermore, by ensuring adequate corporate risk management, credit insurance has become an essential ingredient for proper corporate governance, required by investors, banks and rating agencies alike.

The Global Credit Insurance Monitor 2017

In order to understand the dynamics of the credit insurance market, what drives purchasing decisions, if supply meets demand and if products satisfy their buyers’ needs, last year we commissioned a global credit insurance survey – which forms the basis of the Global Credit Insurance Monitor 2017. The survey compared the attitudes and opinions of policyholders to those of credit insurers and examined the evolution of buying behaviour and ways of growing the global credit insurance market. On our behalf, the independent research consultancy, Dr. Schanz, Alms & Company, interviewed insurers, credit insurers and corporate risk managers from across the globe – among them fast-moving consumer goods companies, pharmaceutical companies, and commodity traders – representing revenues of more than US$500 billion in 2016.

Identifying growth potential in credit (re)insurance

For our survey, we took a pragmatic approach and focused on identifying specific areas where credit insurance could expand beyond its current scale and scope. Although the majority of credit insurers and policyholders agree that the level of insurance coverage currently purchased is adequate, policyholders tend to exclude certain risks from their credit insurance purchasing. A lack of risk awareness might be one reason for this.

Equally, purchasing decisions may be driven by a desire to keep the good risks and only insure the higher-risk business. SMEs in particular tend to exclude domestic risks, for example. When margins are tight, the cost of credit insurance can be crucial when deciding whether or not to transfer the risk. However, the complexity of the policy – the contract wording, its interpretation and its practical applications – can also be a deterrent for smaller insurance buyers. Large global sellers, by contrast, who choose credit insurance primarily for financing purposes, retain a portion of the credit risk on their balance sheet and manage it through their tighter payment terms and conditions.

Significant potential exists to expand credit (re)insurance

According to the results of our survey, both insurers and policyholders see significant potential to expand credit insurance protection and therefore generate additional revenues for insurers and support policyholders in building their franchises. Interestingly, credit insurance buyers believe the current suite of products does not fully meet their protection needs and/or that policies are too rigidly applied. Meanwhile, larger companies would prefer to have the ability to differentiate between different types of risks. These results therefore suggest more flexible and tailored products may bring about new business opportunities for insurers and open access to previously untapped client segments.

Credit insurers agree that there is significant opportunity to capture this additional credit insurance demand. In order to tap into this, many suggest reducing product complexity, enhancing client servicing, improving the reliability of credit insurance solutions and adopting a more bespoke approach to pricing.

We are encouraged by these findings, which highlight several opportunities to grow the credit insurance market, and therefore provide additional protection to policyholders and support them in expanding their franchises. We look forward to convening with our cedants and brokers in the near future, and collaborating with them to further advance the credit insurance market going forward.

You can read the full report here.


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