Swiss Re Study: Outlook Promising for U.S. Credit Insurers

October 31, 2000

So found a recent Swiss Re sigma study “Trade Credit Insurance.” The study also found the products that will likely boost revenue include: credit lines for commercial internet purchases, information services and other support services for corporate accounts receivable departments. Markets with greater potential for growth than Europe include: US, Eastern Europe, Asia and Latin America.

The study said credit insurance premium growth will be modest in the mature European market, and will achieve about a 10 percent annual rate in the US. Growth of business-to-business internet transactions in the US should boost demand for credit insurers’ skills. The study also reported that credit insurers will have many new opportunities to offer their risk management expertise and proprietary databases, providing:

Debt collections services

Additional risk transfer products, such as factoring services

Credit information on companies worldwide

Lines of credit to commercial buyers for use in Internet transactions

Credit enhancement for the rapidly growing market of asset-backed commercial paper of trade receivables.

Rapid growth is expected for US premium volume. Credit insurance has been less accepted in the US, but premium volume is now growing rapidly. Through interviews with credit insurers, the study’s authors discovered a number of reasons why self-retention, rather than credit insurance, has been more common in the US:

US credit insurers provide fewer services than European insurers Trade receivables from sellers in the construction sector are covered by law through specialized construction bonds in the US, but not in Europe where they are covered by trade credit insurance

Exports, which are frequently insured, account for just 11 percent of output in the US, compared to 30 percent in Europe

Company information is more readily available and transparent in the US, facilitating self-insurance

Credit departments are more fully staffed in the US in order to support self-insurance US export growth and a trend toward corporate outsourcing are expected to fuel annual premium growth of about 10 percent over the next five years.

The study concludes that the outlook for credit insurers is positive. Credit insurers are becoming receivables management companies — providing credit information services, collection services and risk coverage. These companies are using their risk management expertise and proprietary information to compete in the changing marketplace by unbundling their service offerings and providing new products.

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