The emergence of artificial intelligence has enabled South African insurance company Hollard to launch a new product that insures importers against non-delivery from China.
The insurance product has been developed in partnership with AI company Qlarium (formerly Tiidan), with reinsurance provided by Munich Re.
The launch comes in response to a growing need for new forms of protection as companies move away from traditional trade finance instruments towards open account trading. This is particularly the case when trading with Chinese exporters, who typically require advanced payments on orders, explains Yaron Shapira, CEO of Qlarium.
“In trade with China, it’s very rare to get credit, so most of the importing companies are paying deposits,” he says, adding that this leaves importers at risk of non-delivery, even more so in light of intensifying geopolitical tensions. “With the changes in tariffs from the US on China, the riskiness of the Chinese suppliers is becoming more serious than it was in the past.”
The new insurance product targets importers (and their financiers), as opposed to traditional trade credit insurance, which is taken up by the exporter to cover the risk of non-payment.
“The obligation is on the importer to take up the cover, whereas normally the only way importers can secure themselves is if the exporter provides some kind of guarantee,” says Gareth Joubert, Hollard’s managing director for trade credit in South Africa.
This is quite a unique proposition, which Joubert says is made possible with Qlarium’s AI tool to assess a supplier’s risk profile.
The solution automatically collects, scans and structures data from a large number of web-based sources: anything from information on shareholders and capital to legal cases, media coverage and certificates, in order to spot potential risks associated with the Chinese supplier. Furthermore, the algorithm has been trained to predict the probability of the supplier to fail or deliver.
While the tool was first launched for importers, enabling them to assess the risk of new trading partners, Qlarium’s partnership with Hollard sees them use the same technology to calculate the price for insuring that risk.
“For the first time we created the coverage of non-delivery,” Shapira says. “We are covering all the related risks, because our model knows how to look at the supplier and make sure it is in good shape, that it is trading and has been exporting this specific product for a long time, and predict the supplier’s probability to deliver the goods.”
The product has first been launched as a pilot, where Hollard will evaluate the risk criteria, pricing and demand for the product. While the parties had originally envisaged that the cover would be taken up by importers, Joubert notes that financiers supporting those transactions have been particularly interested in the offering.
He explains that, because of the current inability to assess non-performance risk on Chinese suppliers, supply chain finance providers typically only provide facilities worth 30-40% of the trade value and only for clients importing from known trading partners. He expects the new product to change this.
“Firstly, we’re allowing the trade financier to open up their client base because they can now accept new transactions with clients with a new Chinese export relationship, which they previously turned away,” Joubert explains. “And secondly, it allows them to increase the facility they are providing with the South African client.”
The offering will first be tested in South Africa, but after the pilot the companies will look to expand to other countries where Hollard has a licence, including Botswana, Zambia, Namibia, Ghana and Mozambique.
As for the exporting countries that the solution covers, Qlarium is currently working to expand to other Far East countries, including India.
The launch comes as a growing number of insurance companies are looking to innovate their offerings as a result of new technology.
In July, for example, Beat Syndicate 4242 of Lloyd’s and tech firm Previse released a combined technology insurance offering that enables supply chain finance providers to pay suppliers as soon as an invoice is received, rather than waiting for it to be approved by the corporate buyer.
The solution is based on Previse’s instant invoice payment technology, which uses AI to automate the process of checking invoices and predict whether an invoice is likely to get approved by a corporate buyer. Beat Syndicate then covers the pre-approval invoices against dilution risk, namely the contingent risk that the corporate won’t pay an invoice for legitimate reasons such as it being incorrect or fraudulent.