Brokers have a key role to play in driving innovation
The credit insurance market has often been described as old-fashioned, providing a relatively inflexible product in a market historically dominated by three major global players. While it’s unfair to call it ‘old-fashioned’ when analysing the actual trends and initiatives in recent years, today’s increased premium costs due to current economic and cost of capital factors, and a relatively restricted capacity supply, means it is fair to say that it is a market more than ready for disruption.
And there is a clear role for brokers to play in leading that disruption for the benefit of our clients and the industry, especially by providing the technological infrastructure that can allow insurers and brokers to collaborate more closely. The prize is better cover for insureds and a bigger premium pool for the entire market as more businesses reap the full benefits of using credit insurance.
A critical tool
Credit insurance products offer a critical tool for all types and sizes of business from SME to global corporates when it comes to: offering working capital optimisation and balance sheet protection (a business’s receivables are often its largest asset); contributing to healthy credit management; and, driving revenue growth by providing forensic insights into the risks of default, collection solutions and collateral for receivable finance facilities.
Given this potential value, more businesses are leveraging the benefits particularly when protecting against the economic impact of Covid-19, or catching the upswing as economies come out of lockdown. That’s why credit insurance requires continued evolution to meet clients’ demands in a world of rapid change that favours flexible business models and allows decision makers to re-shape to the new normal. But, one of the key barriers to that evolution – and a restriction to access to the product and market growth – has been the siloed nature of the credit insurance market relating to three factors.
Firstly, the larger credit insurers use proprietary systems that often house complex conditions relating to their own insurance policies. Secondly, there is limited market cooperation when it comes to digitalisation. And thirdly, information is not generally shared, which often leads to clients picking up the operational risks involved in managing the policies. Technological investments need to be made beyond those carried out by the insurers themselves simply because clients will not be limited to one capacity provider, and a more transparent blended cost between insurers will need to be considered if we are to drive a better client experience and market longevity. The good news is, insurers are showing more of a willingness to work together but they need the right ecosystem in place to allow them to do that efficiently.
Turn to cloud-based credit solutions
Brokers can play an essential role in breaking the stalemate by developing this ecosystem through technological solutions that can address the structural issues and make credit products more cost effective for more businesses. Aon’s strategy is to develop cloud-based credit solutions tools via its CreditHub ecosystem, enabling automated connectivity between a business and selected insurers. This creates a healthier insurer relationship and the IT investment is transparent. In addition, policy conditions are implemented into the software while the credit risk management framework is validated by industry experts and then converted into software language, so that there is automation around maximising coverage and compliance with all policy conditions allowing claims to be paid.
Data driven and fact-based
With risk information available and collected in a structured manner, Aon is able to move to a data driven and fact-based advisory role for its credit insurance clients. This increases the efficiency of risk placement and quality of advice, but also provides an opportunity to observe macro trends and developments in sectors and countries at an early stage to help inform the client and shape their strategic choices. Ultimately, a company can make easier and more flexible use of the possibilities offered by the credit insurance market and other forms of cover can be applied sooner; think of top up, excess of loss, or syndication of the risk supported by conditions that will be accepted by several insurers and managed through the software.
It’s not just about technology either: in order to expand the international SME market – a prime target for new growth – other steps such as policy simplification will also be a requirement as well as a clear go-to-market strategy that is linked to financing and/or other distribution channels. In our experience, future solutions for our clients need must not only be simple, they must also make a significant impact.
There are no losers here
Developments like CreditHub might be termed as market disruption and they are, but there are no losers here. For the industry – brokers and insurers alike – not only is there the prospect of premium growth coming into the market but there is the more efficient sharing of risk information and analysis which should improve the quality of risk selection and lead to higher capacity, lower losses and improved long-term client experience. Buyers will also be less likely to underinsure which serves everyone better, while they will benefit from a policy and a structure designed for their business and built on data and analytics, rather than the less flexible credit products they may have had in the past.
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