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Zenik Solution platform is designed for Underwriters, Brokers, Banks, Data providers.
Zenik Solution platform is designed for Underwriters, Brokers, Banks, Data providers.
As premium rates for traditional insurance lines deteriorate, insurers and investors are increasingly exploring new areas for growth. In 2024, trade credit and political risk insurance (PRI) are emerging as promising sectors. This shift is driven by the successes of 2023 and the need for Insurers to find profitable opportunities that can make up the premium shortfall from traditional insurance lines. The signals for this shift are already showing, with more managing general agent (MGA) start-ups looking to establish themselves in this space, and a continued growth trajectory despite rising supply chain disruptions and insolvency risks.
The insurance industry has been grappling with declining premium rates in key sectors like property and casualty (P&C) and life insurance. Factors such as market saturation, increased competition, and regulatory changes have pressured traditional lines. Consequently, insurers are seeking alternative avenues to maintain profitability. Trade credit insurance (TCI) and PRI have become attractive options due to their growth potential and relevance in the current economic climate.
In 2023, TCI saw substantial growth, driven by increased global trade and the need for businesses to manage credit risk amidst economic uncertainties. The global premiums for TCI and surety combined reached approximately USD 35 billion in 2023, highlighting its importance in the insurance landscape. Digital platforms and advanced analytics have transformed underwriting processes, enhancing risk assessment and enabling quicker policy issuance.
Political risk insurance protects businesses against losses resulting from political events such as expropriation, political violence, and currency inconvertibility. As geopolitical tensions rise and emerging markets become more integral to global supply chains, the demand for PRI is increasing. Companies expanding into volatile regions seek PRI to safeguard their investments, making it a key growth area for insurers.
The current economic landscape is characterized by significant shifts that are influencing the focus on TCI and PRI. One of the primary drivers is the persistent economic instability and geopolitical turbulence. The war in Ukraine, ongoing tensions in the Middle East, and trade disputes have heightened the perceived risks associated with international trade and investment. Businesses are increasingly recognizing the importance of mitigating these risks through comprehensive insurance solutions. Furthermore, high inflation and tightening monetary policies have led to increased borrowing costs and financial stress for many companies. These conditions have elevated the risk of defaults and insolvencies, particularly in sectors heavily reliant on credit. As traditional insurance lines face declining profitability, the relatively high premium rates and growth potential of TCI and PRI provide a compelling alternative for insurers looking to diversify their portfolios.
Despite the promising growth in TCI and PRI, insurers must carefully balance expansion with the rising risks of insolvency and increased claims. The economic slowdown, high inflation, and supply chain disruptions have elevated the probability of defaults, posing significant challenges to the TCI sector. In 2023, non-payment claims reached a historic high of USD 8.9 billion, a trend that could continue if economic conditions remain strained. To navigate these challenges, insurers are focusing on robust underwriting practices and leveraging data analytics to better assess and manage risk. The use of artificial intelligence (AI) and machine learning can help identify potential default risks earlier, allowing for proactive measures to mitigate losses. Additionally, collaboration with reinsurers can provide additional layers of protection and risk-sharing, ensuring that insurers remain solvent even in the face of high claims.
The integration of technology into insurance processes is a critical factor driving the shift towards TCI and PRI. Insurers are increasingly adopting digital platforms, AI, and big data analytics to enhance their risk assessment capabilities. These technologies enable more accurate predictions of creditworthiness and political stability, allowing insurers to price their products more competitively while managing risk effectively. Moreover, the strategic decisions made by insurers in response to these economic shifts are shaping the future landscape of the industry. Insurers are not only expanding their product offerings but also investing in building strong partnerships with reinsurers and other financial institutions. These collaborations are essential for spreading risk and ensuring that insurers can withstand the financial impact of large-scale claims. As 2024 unfolds, the market’s ability to balance growth with risk management will determine its success in navigating this new frontier.
By Robert Llewellyn CEO of Zenik Solutions
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