The International Credit Insurance and Surety Association (ICISA) recently released a report highlighting the critical role of trade credit insurance in global trade. The report reveals that 15.07% of global trade in 2023, amounting to €8.5 trillion, was supported by short-term trade credit insurance. This sector, with a total premium value of over €15 billion, plays a crucial role in supporting trade networks around the world.
Contrary to common perception, the report indicates that 72% of short-term trade credit insurance is provided by private entities rather than state-driven initiatives. This demonstrates a competitive and innovative sector that collaborates with public and private financing to offer coverage for risks of varying sizes and tenors.
Despite the significant role trade credit insurance plays in global trade, its reach is uneven across different regions. The report highlights that advanced markets in Europe and Australia have the highest penetration of trade credit insurance, with North American markets showing steady growth. However, developing regions still face challenges in accessing specialized financial services, emphasizing the need for digitalization efforts to bridge this gap.
Non-payment of invoices can have devastating effects on businesses, leading to financial issues and even bankruptcy. Trade credit insurance acts as a crucial buffer, absorbing the risks of trade and ensuring the smooth operation of business transactions.
ICISA utilized its position as a major insurance association to gather data about the industry and its impact. Through interviews, desk research, and internal databases, the report estimated the global impact of trade credit insurance in comparison to the total volume of world trade for 2023.
Trade credit insurance provides protection against non-payment of trade receivables, allowing businesses to continue operations without worrying about cash flow. Insurers work with businesses to assess risks and define the level of protection, offering short-term policies for policyholders to set credit limits on buyers.
As the global outlook becomes more uncertain, the demand for trade credit insurance is expected to rise. Geopolitical disruptions, supply chain pressures, and trade tensions all contribute to the increasing need for protection against risks in the market.
In conclusion, trade credit insurance plays a crucial role in supporting global trade networks by absorbing risks and ensuring the continuity of business operations. As the industry continues to grow and evolve, understanding its importance and adopting strategies to support its development will be essential for businesses operating in an increasingly interconnected and volatile global economy.