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Premiums for trade credit insurance hit US$13.9bn in 2022, a small proportion of the US$7tn in insured shipments where trade credit insurance could have been used, the International Credit Insurance and Surety Association (ICISA) says.

Only 13.2% of covered shipments worldwide were protected by trade credit insurance, with the private sector providing more than two-thirds of the cover, ICISA says. It estimates world trade to have totalled US$100.6tn last year.

The findings “clearly demonstrate that there is a significant gap in protection faced by businesses”, ICISA says, a mismatch likely to be felt more keenly by smaller businesses outside of Europe.

“Trade credit insurance is largely an unknown product, particularly in Africa, and with too little exposure in large parts of Asia and North America,” Richard Wulff, executive director of ICISA, tells GTR. “I was in West Africa a couple of months ago, talking about trade credit as a means to get financing, and they’d never heard of it.”

Factoring companies and banks are vital for enabling SMEs to access cover, Wulff says, though smaller companies “are probably the hardest market segment to crack”.

“What you need are multipliers, and if you look at developing market SMEs, which miss out most, our multiplier is the factoring companies,” Wulff says. “At a certain point the SMEs grow, and they’ll say, ‘we don’t need the bundle anymore’.”

In a report released last month, global reinsurer Swiss Re says it expects trade credit insurance premiums to grow to US$14.8bn in 2024 despite a slowdown in global trade, which it puts down to rate increases.

It says that demand for the product will escalate in the long term due to “the development of new trade arrangements as a new world order takes shape” that makes supply chains more complex and raises counterparty risk.

An increase in export volumes triggered by new regional and bilateral trade agreements is also likely to boost demand, Swiss Re says. It expects the Regional Comprehensive Economic Agreement  in the Asia Pacific region to add around US$1.3bn to credit and surety insurance premiums in 2030.

Wulff adds that trade credit insurance will likely never reach markets “with functioning futures and forwards markets”. “Big oil doesn’t need us. The smaller traders do take out policies, but only on specific deals,” he says.

Looking ahead to the clean energy transition, there are still too many unknowns to be sure what role trade credit insurance might play, Wulff says.

“If trade in electricity increases in volume, for instance, there will be an electricity exchange. Will there be room for credit insurance? Probably, in some shape or form. We just don’t know yet.”

ICISA incorporates primarily short-term trade credit insurance in its data set, as well as some single risk business. It says it lacks a consistent data set to compare its findings year over year, as it began tracking the global market last year, focusing on the data for 2020.