The importance of estimating the size of the credit insurance market
We know that trade credit insurance is an important service that our members offer around the world. Trade receivables are one of the largest components in most companies’ balance sheets. During difficult economic times, demand for the protection offered by ICISA members rises as expectation of counterparty defaults grows. As we saw during the Covid-19 crisis, governments identify the support credit insurers provide as beneficial to preserve .
The logic for why credit insurance is an important (if often underappreciated) economic tool is clear, but finding good data to demonstrate that in the real world is not always straightforward. This is due to several factors internal and external to the sector. These include:
- Different approaches and uses of credit insurance in different markets
- No single source of data. While ICISA represents the largest part of the private market (84%) there are other elements of the public and private markets that are difficult to estimate and account for
- Credit insurance written by multi-line companies is often not separately reported on in the public domain
- Complicated division of markets across private vs public, domestic vs export, and short term vs medium and long term risks. Working with like-minded organisations across the world is therefore key to create a picture
However, as more attention has been cast upon our sector during the pandemic – and continues with challenging economic conditions globally – ICISA has attempted to generate a clearer image of the important role trade credit insurance plays in the global economy.
It’s important to understand what we are referring to, the assumptions we have used, and where caveats may apply. Moreover, this is the first effort by ICISA to identify these statistics from the available data. We hope that by running this exercise, we can a) build a comparable dataset over time that can show the value and penetration of trade credit insurance globally, and b) improve the quality of the inputs to make our estimates more accurate.
We have gathered data from publicly available sources (World Bank, annual reports of credit insurers, publications from other associations, etc.), combined this with the data that we gather as the global trade association for private trade credit insurers internationally, and combine this with data gathered directly from other associations, market participants, and others with useful insights into different aspects of the global market.
Given the limitations noted, we are comfortable to describe the outcomes of our analysis as estimates. An exact figure for the key statistics we have generated is not possible given the data currently available. However, as noted, we believe it is important to begin this process and expect that the quality of the data and other inputs to this research will improve over time, solidifying the estimate we produce. Moreover, we consider this to be a live project and corrections or other improvements will also be made over time.
With the data available to us, we have made estimates of for the year 2020 covering a number of interesting, high-level topics. In particular, we wanted to address:
- The size of the global trade credit insurance market (aggregated total of all short term credit insurance, covering both export and domestic from public and private sources, combined)
- The value of insured shipments globally (i.e. the value of all shipments of goods for which trade credit insurance is provided).
- The penetration rate of trade credit insurance to world trade (or, the proportion of all world trade protected by trade credit insurance in one form or another).
What have we found?
Below are the key findings of our first estimate of the role of trade credit insurance in global trade:
- 14.52% Percentage of World Trade in 2020 protected by credit insurance
- EUR 12.07bn Total global credit insurance premium
- EUR 6.35tn Total value of insured shipments
- 61% Percentage of global credit insurance market represented by private insurers
- 84% Percentage of private market represented by ICISA
Key to the findings listed above is a further key assumption we have adopted based on conversations with market participants, as well as experience of global markets, is an average premium rate of 0.19% on turnover. This assumption enables us to derive the value of insured shipments noted above, as well as generate a penetration rate of trade credit insurance to all worldwide trade. We believe this assumption is reasonable and moderate in the context of normal functioning in global trade credit insurance markets we are aware of.
What does this mean?
As we said at the start, we know that trade credit insurance plays an important role in protecting one of the biggest asset classes for companies of all sizes. Equally, we know that the distribution of this level of penetration of trade credit insurance is far from uniform across regions, sectors, and market segments. Unfortunately, generating snapshots at these levels is currently not possible given the data available to us and the limitations within or assumptions.
While we can say that trade credit insurance plays a significant role alongside other products in protecting trade globally,, there are also likely to be large volumes of trade unprotected placing strain on supply chains around the world. With most economic outlooks predicting dark clouds approaching for both trade and GDP growth, the benefit of being insured against counterparty default becomes ever more apparent.
Looking into the future
Given the important place of credit insurance in world trade demonstrated by these estimates, , continuing this analysis into the future will be key to explaining why our sector is an important one for governments, regulators, other financial institutions, manufacturers, and others in the real economy to understand better.
This will not be an overnight project and that is why we are looking forward to improving the inputs we have for this analysis, and continuing this analysis into the future to generate a fuller data series. We have been open about the limitations of the data available to us so that those looking to understand our sector are aware of the challenges in producing such information, but also because we welcome suggestions of ways to improve this analysis further. It’s only through this method that we will better understand the world around us, the challenges we face, and the tools available to us to solve them.