Happy new year to all members of the “world of credit insurance” community. The last blog update is already several months old and between the years I had some time to recap 2021 and think about the potential upcoming challenges.
Here are my personal thoughts about the key hurdles our industry might face in 2022. I am looking forward to your opinion:
1. Can the credit insurance industry keep up coverage in uncertain times without governmental support?
When Covid started to slow down the global economy, credit insurers were full of fear of the unpredictable consequences. Therefore, insurers and governments worldwide quite quickly set up re-insurance schemes. The schemes ensured that trade credit insurance coverage and credit limits were maintained during the coronavirus pandemic, helping businesses to trade with confidence. Almost 2 years after the first schemes were set up, low insolvency levels resulted in all time low claims ratios for the credit insurance market. The schemes were quite expansive lessons learned for the industry and were not renewed after June 30th, 2021.
However, we are now in 2022, the corona crisis is in its fourth wave and we see lockdowns again in regions across the globe. Insolvencies and claims ratios are still low, mainly due to strong governmental financial support for businesses. Though, we also see the consequences of fiscal politics with inflation coming in, which may force central banks to increase interest rates soon. We probably can just assume the impact on all zombie companies out there, which are still alive due to cheap financing conditions. While some credit industry industry experts are still waiting that “winter is coming”, there are also some prominent voices, as Elon Musk, who predict difficult times ahead.
The key question will be: Are credit insurers prepared for an economic downtrend and are they prepared to keep coverage up without governmental support? In my opinion we should not rule out a potential revival of the governmental schemes, in case an hard recession might kick in. Both sides, governments and the insurance market know how it works now and it’s an easy measurement to keep up confidence in supply chains. Of course it cannot be the preferred option of the private credit insurance industry, as cost ratios were too high, when schemes were in place. Nevertheless our industry (as we know it) would not survive another dramatic shortage of credit limit coverage and the loss in trust of credit insured clients would be too massive. Therefore it is good to have solutions in the drawer.
2. Increasing market share by attracting new clients to the credit insurance market…
To be honest, in my personal opinion, most of the successful market players, doesn’t matter, if insurers or brokers, have gained market shares, because other players struggled. Of course it’s great to win clients from others, as it shows that the offered performance is perceived better (or more stable) than from competition. Though, our industry is lacking in attracting new customers (currently uninsured companies) to the market. In times of high risk global environments it should not satisfying managements that growth is mainly coming via increased existing client activity (via inflation?).
Credit insurance is a tool, which takes off credit risk from balance sheets and basically every company with B2B sales need to consider to credit insure or self insure. Is self insurance in times of negative interest rates really the better and more cost efficient solution? And if a company does not buy credit insurance, do they really self insure or are they just uninsured?
There is an interesting article, published by Atradius, about the real meaning of self insurance. Worth to read!
So what can our industry do to attract more uninsured or self-insured clients? Maybe the main product is still too complex. At the moment, a company, which is implementing credit insurance put an highly additional administrational effort on its own organization. Hence, on the one hand digital solutions are key for onboarding and attracting new clients to the industry. Digital interfaces, which are connecting the enterprise resource planning (ERP) software of the client(s) with the credit insurance market are definitely needed to minimize administrational workload and reducing the entrance barriers for new customers. Fortunately some insurers and brokers have this digital solutions ready now and will push it into the markets in the coming months.
On the other hand the credit insurance industry needs to attract new talents as well, in order to win new clients. This leads me to the third challenge of the credit insurance market in 2022.
3. “War for talent” – Attracting new colleagues to the credit insurance industry…
As described under point 2, the credit insurance market is lacking in attracting new customers. Hence, we all need new opinions, implementing new ways of making business and thinking out of the box, with the aim of growing the industry beyond current borders. Therefore, the industry needs more and basically new colleagues and new talents, instead of just trying to win the “war for of existing talent” among market players, which nobody can win anyway.
Maybe on the first sight “credit insurance” might not the most “sexy” environment to work in, compared to e.g. investment banking, tech(s) or “M&A”. However, on the second sight, it´s a great environment to work in. Colleagues have the chance to work with the most exciting companies on local, as well on global level, in international teams with great spirits. There are many colleagues on insurer and broker side retiring in the next couple of years, which will open the doors to create successful career(s) and shape the industries future.
Lets all working together in convincing new clients and new talents to join our journey. In these times credit insurance will be needed more than ever.
Many thanks for reading and I am looking forward to receiving your feedback and thoughts.
Best,
Burkhard
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