Trade Credit Insurance, the backbone of emerging markets
Unlike other lines of general insurance, Trade Credit Insurance is a very specific product. It is a powerful tool for companies to grow their business, but can be complex to handle especially in a developing market environment such as the United Arab Emirates where it is a relatively new concept and specialised players are few.
Trade Credit Insurance which covers businesses against the risk of non-payment by their debtors is not a “one size fits all” product. First, it needs to be tailored to the precise requirements of the policyholder’s business; second, policyholders need to understand how to comply properly with the policy wording and conditions; finally, it requires continuous support and monitoring from specialised brokers to avoid bad surprises in case of claims.
Understanding the organisation of a business and especially its invoicing practices is the first requirement before negotiating and placing a trade credit insurance policy. Once assessed properly, specialised brokers will tailor the product with credit insurers to make sure that the policy will run smoothly in the long term.
Not all organisations are ready to deal with this product especially in an emerging business environment where invoicing systems and practices are not as developed as in more mature markets. Furthermore, it is more challenging for credit insurers to operate in a business environment which is less transparent than a developed market, even though local governments are starting to address this by, for instance, implementing modern insolvency laws. We can count on the leadership and awareness of local rulers to continue down this path.
Complying with a Trade Credit Insurance policy terms and conditions is a critical requirement of an organisation. The role of the specialised broker is key to explain how to manage the policy and to offer proper training to the department dealing with trade credit insurance on a daily basis. Attention to the detail is vital in trade credit insurance and experience is key.
Monitoring a Trade Credit Insurance policy by working closely with the specialised brokers along with credit insurers is the last requirement. It can be a challenge for a policyholder to manage the policy due to the risk appetite of insurers continuously changing depending on market situations and industries, and daily servicing from brokers is key. These uncertainties can be minimized by regularly meeting risk underwriters and sharing information with them.
Trade Credit Insurance was created more than 100 years ago in Europe. In France, which has been at the forefront of the development of this product, we have seen policyholders and credit insurers building up strong partnerships over decades. The same is true in other European countries – Trade Credit Insurance has become part of a business’s DNA and it will follow the same path in this region; it is just the beginning of Trade Credit Insurance for the GCC.
