Surge in demand for credit insurance and surety cover expected in 2021
In the latest annual state of the industry survey, members of the International Credit Insurance and Surety Association (ICISA) anticipate increased demand for credit insurance and surety. As government support measures are wound down, ICISA members expect a resulting rise in claims in the course of this year.
Trade credit insurance
95% of ICISA trade credit insurance respondents anticipate an increase in global demand for credit insurance cover in 2021, due to greater risk awareness and increased likelihood of defaults. Members also expect increased demand for cover in countries heavily affected by the pandemic, such as Spain and Portugal, due to greater risk perception stemming from the effects of the pandemic in those economies.
For single- and political risk underwriters, growth is anticipated in OECD countries and Brazil, in particular. Underwriters also expect growth in countries that have recovered more quickly from the pandemic, such as China, as well for countries in Europe, Africa and Asia with a high GDP growth potential.
Almost all members expect an increase in claims in 2021 as the economy recovers and economic support measures are wound down, in particular in Europe, Latin-America and the U.S. An orderly and coordinated wind-down of support measures may ease this concern. A small number of respondents (40%) expect claims to rise further in 2022.
Pricing is expected to harden further, continuing a trend that began prior to the Covid-19 pandemic. In countries without government support schemes or where these are limited, respondents expect a harder market to match the increased risk in these markets.
When it comes to new products and new policies launched, insurers focused on developing new digital products, improving automation and introducing policies in support of sustainable development.
Government support
Most ICISA Trade Credit Insurance members participate in one or more of the credit support schemes set up by governments in various countries. This support is not aimed at insurers themselves, who are and remain solvent, but rather at the companies that are insured, in protection of those companies, the jobs they represent, their supply chains and buyers. There was wide agreement that it was important that risks continued to be insured allowing vulnerable, but otherwise healthy companies to stay in business.
In retrospect the effect of these schemes is mixed. The credit support schemes are costly for insurers and carry an administrative burden, while the effect of these schemes on risk appetite is limited. In general exposures were reduced selectively or not at all and this applies to countries with and without a credit risk support scheme.
The schemes are important for the traders they aim to protect. A sudden or disorderly cancelation of economic support measures risks creating an unintended shock and exacerbating a situation that these measures aimed to avoid. An orderly and coordinated wind-down will determine their ultimate success. ICISA members will continue to support their policyholders during these changes.
Surety
A majority of surety members expect an increase in demand for cover in the coming year, driven largely by expected growth in infrastructure spending. Sureties foresee growth in Latin-America, Europe, South Africa, China and the US.
Almost all of ICISA surety members (85%) expect a sharp increase in claims paid in 2021, and some 40% expect this to continue in 2022. Respondents perceive an increased risk in countries where government support measures are available, as well as in tourism-dependent countries.
Given long-term healthy prospects of surety markets, this market is expected to remain competitive with ample capacity to meet demand.
One of the benign consequences of the pandemic is the launch by sureties in the past 12 months of new initiatives that aim at providing a complete digital experience and further integrating new technologies into their business models.
