Final chapter: Once upon a time Trade Credit Insurance in Dubai
 |
Aurélien ParadisAU Group UAE |
A few years ago, I released a series of articles entitled “Once upon a time Trade Credit Insurance in Dubai” studying the credit insurance market in the region. When writing these articles, credit insurance was still in its early stages, and I was also relatively new in the region and did not understand all the specificities of this market. I thought it would be interesting to conclude this series of articles with a final article in which I offer my view of the TCI market based on a few good years of experience in Dubai.
We cannot talk about the credit insurance market without first looking at the economic situation of the GCC. Indeed, credit insurance protects businesses against the risk of default of their clients, therefore the economic performance of the region obviously impacts this industry.
What is the state of the economy in the UAE and more broadly in the region?
In short, we are currently in an impressive growth phase where almost ‘all planets are aligned’. This growth has obviously been fuelled by the increase in energy prices but that is not the only reason. First, as it is often the case in the UAE and particularly in Dubai, leaders were flexible enough to take advantage of the crises we have experienced in the last couple of years; the Covid 19 crisis which enabled Dubai to attract more expats from all the over the world. Indeed, the country was reopened in record time, compared with other countries, while maintaining an impressive level of health safety along with a high vaccination rate. Furthermore, they managed to take advantage of the recent geopolitical crisis. As a result, the Central Bank projects a growth of 5.4 % in 2022 for the UAE and 4.2% in 2023 with a level of inflation under control while most western countries might enter into recession in the coming months.
What is the state of the credit insurance market in the region?
In this favourable business environment, credit insurance is performing well in the two main markets, the UAE and Saudi Arabia. The three main global credit insurers, Allianz Trade, Atradius and Coface are offering a good level of insurance coverage without repeating the same mistakes they made in the past when opening this market. They have a much better understanding of the local market with skilled employees which helps to preserve the delicate equilibrium between risk and sales. To summarize, we can say that international credit insurers are less naïve but at the same time, have eased their risk underwriting stand to support their customers to develop their sales. There are, no doubt, discrepancies in terms of risk appetite and commercial strategy depending on the size of the required limit coverage, but on average international credit insurers are quite supportive these days. However, it is important to emphasise that the level of claims is under control which helps to be more aggressive commercially even if we start to see a slight increase in the number of claims in some specific industries.
We need to be able to foresee how credit insurers will behave when the economic environment deteriorates, because this is when you get a glimpse of the real credit insurers’ DNA. I do agree that it is reasonable to become more risk adverse when “winter is coming” as obviously the probability of an increase in claims is much higher, but it is not acceptable to stop supporting existing clients by reducing their current insurance coverage.
To conclude, we can say that the credit insurance market is much more mature than 10 years ago, credit insurers are more organised, know better the local environment and all their specificities and people are generally more skilled. Clients now also know better how to take advantage of credit insurance and have understood the importance of compliance which is crucial when the number of claims increases. And it is, after all, when claims are high and unavoidable that we appreciate the true colour of this product, the rest is poetry.
Download 2022 Credit Insurance Market study
Make an appointment with our experts.
