What are the current issues facing the credit insurance industry, and what can insurers learn from today to optimise future performance? 

After decades of stability, the credit insurance industry is now in a state of flux. Instead of the healthy economic rebound that was expected of 2022, the unanticipated war in Ukraine and its resulting impact on supply chains, energy and commodity prices, recession, inflation and interest rates have flipped the credit insurance industry on its head.
Insurers now face fresh challenges against a volatile risk backdrop with market resistance to accept premium rate increases due to many profitable years. More countries have been downgraded than upgraded. While they may by now be used to responding to constant change, many within the industry see a perfect storm brewing.
We look at the key issues that currently affect credit insurance, the resulting pressures on insurers, and how they can prepare for sustainable, optimal performance, whatever the future brings.

Uncharted Waters
The latest conflict in Ukraine has credit insurers navigating the unknown, with geopolitical volatility bringing new complexities in managing and evaluating the cost of risk. Claims are starting to emerge from those programs issued before any sanctions were imposed, with more claims expected to flow through as time goes on.
Now, even countries that were previously perceived as relatively safe, developed, and emerging have been impacted and are viewed with caution.
Further, the conflict-related rising costs of food and energy which are considered essential goods not only pose an economic threat, but also increase the risk of instability, especially in developing countries.
More than six months after the conflict began, the longer-term impacts are becoming clear. While the initial focus was on sanctions and severing business ties, the fallout has shifted to a fragmented geopolitical landscape, and rising global inflation.
Volatility has now become the new normal, and the crucial role of credit insurance is back in focus with greater demand and new customers who now see the value in seeking cover. For credit insurers, while more requests can be a positive, they also have the challenge of responding to higher demand levels, which could expose those who are unable to keep up.
While there are tools available that can assist clients in complying with policy terms and conditions and reduce the cost and effort for credit insurers, there are still 30 year old legacy systems in place.

Economic Uncertainty
Gloomy and Uncertain’ is how the International Monetary Fund (IMF) described its July 2022 World Economic Outlook, lowering its 2022 growth forecast to 3.2 percent. Significantly lower than 2021’s 6.1 percent growth, the higher than expected inflation, worse than expected economic slowdowns, and negative impacts from the war in Ukraine are key contributors to the slowing world economy. 
Inflation in the U.S and U.K is higher than levels seen in the past 40 years, and in Europe it is at its highest since the introduction of the monetary union. Inflation is not expected to return to pre- pandemic levels until late 2024, but the IMF has flagged that additional factors may well see inflation stay high for longer.

The Pressure Test
As inflation rises, we start to see the dynamics of business change, where fixed price trade contracts will become harder to come by due to ongoing price increases, which will place additional pressure on credit insurers in supporting buyers who are committed to supply on a fixed price.
With higher food and energy prices, supply issues, and tighter labour markets all playing a role, central banks in many advanced economies have raised interest rates faster than anticipated. As covid support measures cease, credit insurers are bracing for increased overdues, defaults and insolvencies. The anticipated ‘catch up’ is set to play out as those companies who would have otherwise struggled without Covid-19 support measures are now finding themselves with unmanageable debt.
While the apocalypse of zombie companies has been expected for some time, their days of operating with relative ease finally look to be numbered. Their scale and impact may soon be revealed, and credit insurers must be prepared for the additional financial and operating pressures on their organisations as a result.
Inflation will create an increase in buyer limit applications and exposure, giving insurers more work to do as a greater proportion of their business will require assessment. Furthermore, while domestic and intra-Eurozone trade will not suffer from currency volatility, a 20% USD increase will create higher limits elsewhere as the exchange rate increases the cost of goods.
An inability to get various manufactured products and raw commodities will continue to deteriorate price stability, and impact the industrial equilibrium between competitors, making credit insurance more important, and adding to the demand and pressure on insurers.
With the new reporting, auditing, and standards for Sustainable Development Goals (SDGs) criteria in the European Union, the premium price and cost attached to cover could go up. As governments look to include sustainability in their Export Credit Agency’s mandate, ECAs must be ready to take on additional reporting and analysis that will no doubt continue to become a priority in the future.

Operational Risk Assessment
Credit insurers face a major test of their business models. With the Berne Union reporting that EUR 2.1 trillion, or 13% of cross border trade is covered by credit insurance, the industry plays a critical role in keeping supply chains flowing. But are current operational models up to the challenge?
For an industry that is inherently focused on the business of risk, credit insurers must scrutinise their own organisations with the same risk mindset so they can build agile, future-proof operating models.
More demands on operations to meet higher numbers and volumes of limit requests, new business enquiries, restructured terms and conditions at renewal, as well as the additional work required to manage overdues and claims put credit insurers in a difficult position. An additional challenge will come after volatility softens, when insurers will need value propositions that retain their new customers, or else risk scaling down their operations.
After steady inflows of cash into companies during the last two years from government support, current financial statements and statistical models don’t necessarily paint an accurate picture, so insurers will also need better ways of obtaining information. The expected increase in the activity of monitoring, reviewing limits and exposure further highlights the critical need for smarter sources of data and intelligence.

Customer Expectations
The industry has shifted, with ‘users’ of credit insurance now recognised ‘customers’. At a time when resources are stretched with greater demand, as well as a global talent shortage, the customer now expects a higher level of service not only in terms of responsibility, but also in flexibility and transparency.
Customers will expect the insurer to be transparent in terms of pricing, process, and claims, and to integrate seamlessly with banks and the trade platforms that are emerging, to provide stronger support in facilitating trade. They will also expect their credit insurers to participate in the development of their own intelligence, and to understand the customer’s business, market, and buyers so they can better manage their risks and compliance with policy conditions.
While economic shocks have been experienced in the past, the pressure on credit insurers today is very different. 40 years ago, it was a common expectation that the time from request to approval would take a week. Nowadays, customers expect instant responses.
Credit insurers need to make sure their customers have exposure at the right time. Now, a one-day delay can have major implications on the customer, with the possibility that they either trade uninsured without sufficient coverage, or delay supplying goods because they don’t have the necessary cover in place.

Designing Future-fit Systems

Insurers must be ready and able to respond quickly to changing economic and risk environments and customer expectations. Despite this, the operating systems used by the industry in general have not changed significantly in years. Many insurers operate in the same way they have for decades. With growing demand and expectation it is difficult not to see their service levels being compromised, ultimately impacting their customers’ success.
Unless they can cope with a more demanding workload, there will be a deterioration in service, with those that are unable to respond efficiently to this spike in demand facing the possibility of slowing down turnaround times. Ultimately, an inability to scale up operations to meet an increased demand comes with the risk of impacting customer outcomes.

Solving with Technology
The role of the Export Credit Agency is growing and will continue to. There will be greater need for insurers to be ready and able to collaborate to meet demand. ECAs are no longer just supporting transactions. They are facilitating trade, playing the role of an intermediary with investors, financial institutions, banks, and other ECAs to collaborate on projects. To stay relevant, technology-led seamless partnerships and an integration into the broader ecosystem of trade is the way forward. 
With greater demand comes the need for faster, smarter ways of supporting customers. Under various operating and customer pressures, credit insurers need solutions that will serve their business and customers in a cost-effective, responsive, and flexible way. By integrating technology, they can scale quickly without placing added pressure on their people or processes.
In many ways, credit insurance is a data business. Without instant access to accurate and meaningful data, insurers simply won’t be able to manage the level of information required, or the speed now expected by customers.
The winners will be those that combine technology with human capability, positioning themselves to serve the customer now and into the future, helping them to maximise profitable sales.

About the Authors
Michael Feldwick, Subject Matter Expert Insurance
Mike joined Tinubu in October 2012. Mike is a highly successful credit management specialist with over 30 years of management experience in domestic, export and international credit insurance in both a commercial and a risk environment. He is also a strategic thinker with the ability to problem solve through to implementation.
Mike’s extensive knowledge, innovation, motivation and enthusiasm have ensured continuous success in key roles. He is also a strong leader highlighted through managing, developing and motivating diversified teams to achieve objectives with budgetary responsibility. 
His analytical and change management skills combined with strong commercial experience have always ensured that profitable growth is maximised. His interpersonal and client relationship skills have also contributed to a very strong contact portfolio. 
Prior to joining Tinubu, Mike held a number of senior underwriting roles within the Allianz Group.

Nicolas de Breteuil, Regional Sales Manager Europe
Nicolas joined Tinubu in September 2020 as Regional Sales Manager for Europe and currently leads the business development with ECAs and speciality line insurers across the European area. 
Nicolas has more than 29 years of experience working in the financial services industry. He began his career as a Grain Trader at Sogexport in 1992. Later, he moved to the financial technology sector as Managing Director for ICY Software, an FX Option front-office solution provider, before joining Oak Field Partners in 2011 as Sales Manager and then Deputy CEO. More recently, he was the Regional Senior Sales and Account Manager at Finastra, in charge of the investment management software team for major European asset managers and insurers.
Nicolas holds two master’s degrees, in Business Law and Taxation, and in Community Law from the Paris-Pantheon-Assas University.

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