AXA XL unveils findings of market survey on 'Innovation in Credit & Surety Insurance'

Authored by AXA XL Head of Credit & Surety, Global Credit & Surety Reinsurance Felix Winzap

Throughout the past two years the Credit & Surety insurance business has demonstrated its ability to provide security and stability in testing times. During the COVID-19 pandemic neither of the two product lines suffered significant losses and strongly supported their clients in spotting market deterioration, improving risk management and exposures and trimming portfolios in time.

As a leading global Credit & Surety reinsurer, AXA XL is keen to further enhance the relevance of these lines of business. We, therefore, embarked on a survey with Credit & Surety insurers, brokers and insurtechs that operate in our segment and discussed with them opportunities to further expand this business line through innovation.

The survey was conducted at the beginning of the COVID-19 crisis in 2020 and then again in the midst of the pandemic to evaluate if it had an impact on innovations in the industry. Overall, interviewees agreed that digitization has become the driving force for change in the industry, as it enhances efficiency, expands market outreach, and increases resilience.

Data has become the main means of production

Although Credit & Surety insurance products are key components to facilitate global trade and guarantee the execution and value of important transactions, their market penetration has remained largely unchanged over the past decades and groundbreaking innovations are still rare. Credit insurers, however, have established direct connectivity to their clients’ credit risk management systems.

Data has become the main means of production. According to some of the interviewees, the ability to collect, sort and process data, particularly in credit insurance, has partially replaced the importance of experience or even capital to succeed as a risk carrier. The integration and interaction of digital systems further enforces a split of the market into generic frequency risks that generate volume but no profits, and complex, large severity risks that are more profitable and still relationship driven.

In fact, as one credit insurer said, artificial intelligence and machine learning have become mandatory for automating 80% of the volume of business and enabling insurers to concentrate on the top 20% of risks that generate the bulk of the profit but have the potential to also cause the largest losses. Those who lack the resources to improve their efficiency to gain access to the attractive business are bound to suffer from lower returns. As a result, the industry is seen to segregate into the market leaders with access to large balance sheets and resources and the smaller players, who lack both capital and expertise.

Corporate clients are the key driver for innovation. Credit insurance is perceived as labour intensive – also for the client – and as complex. Particularly in times of rising risks when credit limits tend to tighten, corporate clients wish for a product that remains fully supportive, even when exposures increase. Digitization has helped to address this challenge as insurers have already taken large strides to integrate their systems with their clients’ systems, reducing the amount of work needed to maintain systems while improving the transparency in decision making. A further key driver for innovation is technology itself, enabling insurers to analyse large amounts of data and adjust risk management to a real-time analysis simultaneously incorporating data from clients, suppliers, and public sources.

COVID-19 pandemic further accelerated the digitization in Credit & Surety insurance

Although the trend towards digitization had been ongoing, the COVID-19 crisis had an accelerating effect. Insurers increased their investment in their digital infrastructure to ensure that staff could work remotely. Furthermore, COVID-19 led to an accelerated use of electronic binding and signatures, which increased from 50% in the pre-COVID era to 100% currently.

Through an ongoing exchange of data, insurers helped their clients to weather the crisis and to spot emerging risks early on. Furthermore, the close link and data exchange between insurers and clients improved transparency and helped the clients to understand the necessity for adjustments to credit limits – something that still led in the Global Financial Crisis to a disruption of client relationships as their customers were confronted too late with ‘negative’ credit limit decisions.

With the release of the ‘Innovation in Credit & Surety Insurance’ market survey report, the Credit & Surety reinsurance team at AXA XL would like to encourage dialogue within our industry as to how to expand our role as risk takers, strengthen our resilience and support the building of communities. We, therefore, look forward to discussing the findings of this report in the coming weeks and months and to learn from our clients where they see opportunities to further expand the relevance of our Credit & Surety reinsurance business lines.

CLICK HERE to view the full survey report