A Dating agency or partners for life?

Column by Charles Nortje, Credit Guarantee Insurance Corporation

Many insurers have something in their corporate mission statement that, “ …we aspire to be our client’s first choice in the market” or something along these lines. This is completely understandable. Beginning with our personal lives, who wants to be someone’s second choice or even, heaven forbid, their last choice? But to be controversial for a moment, I’m not at all convinced that being a client’s first choice of Trade Credit insurer is the recipe for our own sustainability and profitability. To have clients select us in the first place is really nice, but we are not Motor insurers jostling for position in an overtraded market. When we are selected, we still need to apply a stringent filter. In Trade Credit, I believe that client selection is crucial to success.

GET THE BASICS RIGHT

KYC (know your client) and its close cousin, ABC (anti-money laundering, bribery and corruption) are an essential starting point. We simply have to get this right in client selection. The recent Russia sanctions have presented enormous challenges for both insurers and reinsurers to identify sanctioned entities and their immediate connections. Sometimes sophisticated tools are needed to sift through client data. Nothing kills risk appetite for our boards, shareholders, reinsurers and other stakeholders faster than compliance and regulatory breaches. Its not enough to dismiss negative media reports regarding our customers as mere speculation. Proper enquiry has to be made.

THE CLIENTS OWN DUE DILIGENCE

The preferred client is prepared to back their own credit extension decisions with appropriate “skin in the game” from their side. I must wonder at the wisdom of policy structures with an insured percentage of 100%, or no aggregates in place where the client is prone to frequency losses. The better clients do not regard their credit insurer as a dumpster for routine poor credit decisions. Their credit insurer is viewed as a goalkeeper, only where all other lines of defence have failed, or in the case of a catastrophic unforeseeable event.

BEHAVIOUR IN A CRISIS

Better clients approach problems with late payment of a buyer, particularly a large buyer, in a spirit of problem-solving and collaboration with their insurer in a workout process. After all, the client may have a long commercial relationship with the buyer and is in the best position to exert pressure and influence on the buyer to come back into payment terms. Patience and tenacity are often called for with collections. It doesn’t serve a credit insurer well if the first reaction of the client is to submit a claim and offer the bare minimum co-operation, simply washing their hands.

JOINT INFORMATION GATHERING

The better client actively assists their credit insurer with information gathering for underwriting purposes. This is particularly true of frontier markets and economies which are not information-rich. Joint buyer visits to sometimes difficult locations establishes underwriting information on the ground, and feeds a virtuous triangle of relationships between policyholder, buyer and credit insurer. This triangle is an enormously important asset should problems arise later on.

IN CONCLUSION

In my experience, the most brilliant outcome is where we develop the relationship with a well- selected client to the point that our growth strategies and profitability are inextricably linked. When we reflect and plan our future ambitions together with a preferred client, we acknowledge how we have become part of the fabric of each other’s businesses. Truly a partnership for life - rather than a dating agency.