Trade credit insurance is also called credit insurance, business credit insurance, or export credit insurance. While it functions similarly to other types of insurance, it has its own unique aspects.

There are three key players in the trade credit insurance market:

1. Reinsurers

   • Similar to other insurance businesses, reinsurers provide capital support for insurers to run their operations.

   • The largest reinsurers in trade credit insurance are the same as those insuring other types of business risks.

2. Company Markets & Lloyd’s Syndicates

   • Lloyd’s of London is one of the most specialized insurers for trade credit insurance.

   • Three major players—COFACE, Atradius, and Euler Hermes—hold nearly 80% of the global market share.

   • Other important insurers include Credendo, AIG, and QBE.

3. Export Credit Agencies (ECAs)

   • Many governments operate ECAs to protect their exporters.

   • Examples: ECGC of India, Canada’s EDC, South Korea’s K-Sure, China’s Sinosure, Japan’s NEXI.

The trade credit market is concentrated among fewer players because it requires:

• Global presence for underwriting buyers

• A global debt recovery mechanism

• International distribution

Due to high capital requirements and extensive expertise, new entrants find it challenging to compete with established players.

How Has the Trade Credit Market Changed Recently?

Globally, the trade credit insurance business has been growing at a steady rate of 2-5%, depending on the region.

However, the COVID-19 crisis had a significant impact on global supply chains, causing:

• Reduced risk appetite among insurers

• Premium prices increasing by 30-50%

• A decline in coverage availability for sectors like transport, tourism, automotive, and real estate

In India, the market is still in its early stages.

• ECGC of India contributes the most premium among local players.

• Private insurers like COFACE, Atradius, TATA AIG, and SBI General cover both domestic and export trade credit risks.

Why Should Companies Buy Trade Credit Insurance?

Despite challenges, trade credit insurance remains crucial, particularly in unpredictable markets like today.

Key reasons to invest in trade credit insurance:

1. Uncertain buyer reliability: Many businesses are at risk of default due to delayed insolvency filings.

2. Cascading effects: A single company’s failure can impact multiple businesses in the supply chain.

3. Cash flow protection: If buyers fail to pay, companies need protection against catastrophic financial losses.

During economic downturns, liquidity becomes a top concern for CFOs. Trade credit insurance helps companies mitigate financial risks.

The Future of Trade Credit Insurance

• Trade credit insurance has consistently grown, despite past economic crises.

• Many top insurers and brokers are now shifting to paperless operations.

• New products are emerging, such as insurance for capital expenditures (Capex).

The demand for trade credit insurance surged 5-30% in different segments post-March 2020.

The future of trade credit insurance is strong, and it will continue to play a key role in protecting businesses globally.

Conclusion

Thank you to Mr. Akshay Bhardwaj for sharing insights into trade credit insurance.

To learn more or connect with Mr. Bhardwaj, visit his LinkedIn.

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