Not only do we live in uncertain times, but we also live in an age that seems to be more uncertain than any other. As a race, we have been faced with a challenge that we were seemingly underprepared for and 18 months after the World Health Organization declared Covid-19 a pandemic, we are still not done counting our losses.
No loss compares to the loss of life and the pain of near and dear ones, but as much as we mourn the ones who passed, we need to spare a thought for the ones who survive and who struggle to make ends meet as economies, industries and companies struggle to come out of the stranglehold that Covid-19 had held them under.
Pessimism looms large all over. Covid-19 has been projected as worse than the Great Depression in 1930. Analyst and agency reports, every day, are diving into new bottoms of a downfall in economic activities. Indian economy, however, has a slightly different story to tell at this hour of crisis. The silver lining for the Indian economy comes from a steep fall in the crude oil prices from around $70 per barrel to a record 18-year low of $22 per barrel.
This windfall gain can, to some extent, offset the direct losses due to Covid-19. At the same time, dreams like a $5 trillion economy no longer look even a remote possibility.
And there is no way out for businesses but to trade and to trade is to undertake risk.
In the current environment it is extremely difficult for companies and small businesses alike, to predict where the next blow out is going to take place. Old risk management, philosophies and algorithms look archaic and not fit for purpose. Risk managers and treasurers must reckon with bad debts, which seem to be always lurking round the corner.
In these troubled times, credit insurance is a policy that protects the business and allows it to grow. Seemingly it is the panacea for all the industry’s woes and we should be seeing corporates lining up outside credit insurers offices.
At first glance, it seems that the industry behaved along expected lines with the first response of the insurers being one of flight to safety. Internationally, we saw insurers cutting down on single buyer exposures, exotic financing transactions and anything that was not plain vanilla.
We now seem to have reached an acceptable level of stability where underwriters are selectively looking at new risks. Everyone across the board remains ultra conservative and the price wars that pretty much characterised the last decade, seem to be a thing of the past.
Challenges in these times
Everyone loves a crisis, especially if it raises demand for your product. But credit insurers always must deal with the paradox that demand for their product is highest when their appetite to accept new business is at the lowest.
Coping with the demand is not the only challenge that credit insurers will have to face. Even as they do the fine balancing act of remaining solvent and growing business, newer challenges are cropping up.
The way AI and Blockchain technologies have developed, they have taken product delivery expectations to unprecedented levels. Banks who saw niftier fintechs nibble away at some businesses now have decided to jump on the technology bandwagon and have come up with digital initiatives of their own.
Banks have traditionally been big drivers of demand for trade credit insurance, and they would want insurers to up the technology game as well.
After a decade of being left out in the cold, it seems like Indian banks and financial institutions will be allowed access to the credit insurance market again. It remains to be seen if they will embrace the product with the same gusto that they did a decade ago or will they be more opportunistic buyers.
These times while uncertain are also interesting for the industry and as market participants, we all have the responsibility of making sure that as an industry we capitalise on the opportunities that come our way.
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