As the trade credit and political risk insurance market awaits the full financial impact of the pandemic, insurers and brokers alike are using the calm before the storm to create cost and agility advantages through digitalisation. Eleanor Wragg reports.


The critical risk absorption role played by insurance in trade has never been more apparent than throughout the Covid-19 crisis, and while the expected increase in claims has not yet come fully to pass, the recovery in economic activity is driving an increase in requests for the product.

According to the latest Berne Union business confidence index, published in September, all insurers – both public and private – are seeing growth in demand, and the trend is expected to continue. However, with the insurance industry yet to see the kind of digital transformation that has transformed the wider financial services sector, this uptick is magnifying the weaknesses that abound in its processes.

“Insurers are seeing hundreds and hundreds of enquiries every month from various sources,” Ben Gibbons, head of credit and political risks, London, at re/insurance broker Miller tells GTR. “Some are using electronic systems, others are using traditional manual methods and paper submissions, and it is just becoming unmanageable.”

Although the world of trade is becoming progressively more high-tech, insurance remains something of a laggard. In the credit and political risk insurance (CPRI) sector, for example, a typical workflow will see a broker go out to the market and ask underwriters to study a risk before indicating a response which, if acceptable, may result in the risk being underwritten. Once the underwriter does that, the broker then collates those responses, all of which are in different formats, and puts them into a form or table for the client’s review. This process currently relies on as many as 400,000 emails a year – and countless telephone calls – between brokers and underwriters.

“The CPRI market has grown significantly since the global financial crisis. The number of insurers active in the space has increased exponentially, taking advantage of the interest in the credit risk insurance product in particular. It is now a complex marketplace, not only in terms of increased deal volume but the types of transactions submitted, and that scale and complexity has created inefficiencies in market practices,” says Gibbons.

In recent years, efforts to streamline the market have gathered pace, focusing largely on the often cumbersome back and forth process for brokers and underwriters buying and selling policies.

At Lloyd’s of London, such efforts have been dominated by two platforms: Lloyd’s own Placing Platform Limited (PPL), set up in 2016, and Whitespace, launched in August 2019. Both are electronic risk placing platforms, which allow brokers and underwriters to offer, negotiate, place and bind insurance and reinsurance contracts with each other digitally.

In 2018, BPL Global became the first broker to place a CPRI policy on PPL’s electronic placing platform. Meanwhile, in October this year, it linked up with trade credit insurer Euler Hermes to complete a proof of concept whereby the two sides connected their internal broking and underwriting systems through an application programming interface (API) provided by Whitespace.

However, while these solutions have helped tackle some pain points, the day-to-day operations of the CPRI market remain dominated by low-tech working practices. One reason for this, says Miller’s Gibbons, is that existing solutions created for the wider insurance sector have their limitations – chiefly that they are designed for standard risks.

“PPL and Whitespace are designed to be execution platforms, and perhaps for more commoditised classes of insurance they are more straightforward and scalable. The CPRI space is not a commoditised product space like other classes of insurance. There are many, many nuances to what we do, whether it be the type of clients or the type of transactions,” he says.

With CPRI covering anything from a 90-day letter of credit to an 18-year wind power project, and everything in between, creating a digital solution that accommodates all of these complex risks in order to streamline workflows is a difficult task – but one that has become increasingly urgent.


Solving for CPRI

Thanks to aggressive policy measures taken by governments in the early days of the pandemic, many businesses around the world have been able to bridge short-term liquidity shortfalls, avoiding immediate and widespread insolvency crises. As a result, despite unprecedented macroeconomic volatility, claims levels for 2020 remained largely stable, according to data from BPL Global, which covers around 20% of the CPRI market.

But as state support unwinds, this looks set to change. After two years of decline, Atradius forecasts global insolvencies will rise by 33% next year, while in its latest political risk map, insurance broker Marsh reports the largest ever increases in economic threats as a result of unsustainable corporate and government debt.

As the market braces for a rise in claims, it is turning its sights to slashing costs in order to better position itself for the challenges ahead – and the most obvious low-hanging fruit lies in its clunky working practices.

“Insurers need better distribution channels to realistically grow premium in the long term, and these channels need to be digital. As far as brokers are concerned, automating unnecessary manual tasks is a real driver of revenue growth, as it frees up capacity for these experts to spend more time advising clients and producing new and innovative business,” Ben Heaney, CEO of independent credit and political risk insurance platform Dialogue Exchange, tells GTR.

Initially launched in December 2019, Dialogue, which digitises the journey for enquiries through to placement for CPRI, left beta at the end of 2020. It enables brokers to structure and create enquiries, and to build their own templates that are specific to their clients. They can then send those enquiries to all of the underwriters on the platform, and each underwriter will be able to respond and negotiate, with the system automatically filling in responses in a uniform, structured way. Policies can then be built and electronically bound, with API connections to insurers’ systems for electronic placement of risks.

In October this year, it notched up its first live deal with Miller, which was soon followed by further transactions with other brokers.

“Dialogue isn’t just an execution platform, because that has already been done. It’s a marketplace and an exchange where deals can be submitted on a consistent basis. The brokers can create a standardised term sheet and execute on preloaded policy documentation, so you have a complete and controlled marketing process that goes end-to-end,” says Gibbons.

Although Dialogue is a relatively new solution, it has seen fast take-up, and now counts around 50 insurers on its platform – with its neutrality seen as a key selling point.

“Our view is you need a system that is independent, and that is broker and insurer-agnostic,” says Gibbons. “We have seen in the past that if you have something which is biased towards either the broker or insurer, inevitably other parties in the industry don’t want to back it.”


Ensuring uniformity

As the digitalisation of the CPRI sector accelerates, industry players are keen to avoid the pitfalls experienced across the wider financial services industry, which has seen a proliferation of largely disjointed digital islands that are unable to connect to each other.

Recently, 12 credit and political risk insurance (CPRI) brokers, underwriters and market specialists, including Chaucer Syndicates, Euler Hermes, Liberty Specialty Markets, Sompo International, Talbot Underwriting, Tokio Marine, Miller Insurance Services, Cofarco, Aon UK and Aon France, along with Dialogue, came together to thrash out terms that would underpin a data standard for the single credit risk insurance market. Published earlier this year, the standard sets out unified terms for field names, industries and cover required for structured credit transactions across a number of deal types.

“Several actors in the industry, including insureds, brokers and insurers, have talked up the need for a common market platform using a common set of data that understands and responds to the specialisms of complex risk, like CPRI,” says Dialogue’s Heaney, adding: “For the industry as a whole, using statistics and data can be made much easier. There are many benefits here, from capacity benchmarking to pricing analytics.”

In the London market, where most CPRI business is written and often handled face-to-face, these innovations are bringing in a new digital foundation for automatic underwriting and deal flow – cutting out unnecessary and costly manual procedures and giving the market the headroom it needs to stay profitable in an ever-more challenging landscape.