International Credit Insurance & Surety Association (ICISA) Explores the Impact of Trade Credit Insurance on World Trade
Trade Credit Insurance highlights in 2022
- Premium volume of global trade credit insurance market USD 13.89 billion
- Insured shipments USD 7 trillion
- Penetration rate: 13.16% of worldwide trade in goods
Trade credit insurance plays a crucial role in managing risks for businesses. The risk of non-payment of invoices stands as one of the most significant challenges, affecting the survival of businesses. Understanding the scale of protection provided by trade credit insurance sheds light on the challenges faced by businesses and offers potential solutions.
What is Trade Credit Insurance?
Trade credit insurance is a protection against the non-payment of trade receivables. ICISA members primarily provide short-term, whole-of-turnover protection, covering invoices with payment terms generally less than one year. Working closely with policyholders, insurers assess credit limits for commercial customers. In case of non-payment due to insolvency or protracted default, the insurer indemnifies the business against the loss, providing flexibility to invest in growth and innovation.
Trade credit insurance serves as a vital tool for businesses to secure financing on favorable terms, enhancing cash flow security. Banks also utilize credit insurance to reduce exposure to credit risk, enabling them to extend financing further throughout the real economy.
Estimating the impact of Trade Credit Insurance
Assessing the impact of trade credit insurance on global trade faces challenges due to limited access to data and variations in definitions across regions and companies. ICISA has undertaken the task of estimating the global trade credit insurance market’s impact, focusing on the year ending 2022.
ICISA’s analysis suggests that the global trade credit insurance market reached a premium volume of USD 13.89 billion in 2022. This covers insured shipments valued at just over USD 7 trillion, with a penetration rate of 13.16% of world trade as measured by the World Bank. Private market participants, particularly ICISA members, contribute 69% of this protection.
While variations exist in estimates from different sources, the consistency in results provides confidence in the size and impact of the trade credit insurance market in the context of world trade.
What the statistics tell us
These statistics highlight the significant value the trade credit insurance industry brings to the real economy. However, they also underscore a substantial protection gap, likely affecting smaller businesses, especially outside of Europe where the product is less established.
ICISA is actively working to raise awareness of the industry’s role and collaborate across public and private sectors to address these gaps. The association aims to help governments, regulators, businesses, financing institutions, and society at large understand the workings of trade credit insurance and its potential in bridging protection disparities.