Matthew Cockerill (pictured), head of commercial underwriting in Asia-Pacific at Coface, describes trade credit insurance as a lubricant that keeps international trade moving.
Based in Hong Kong, Cockerill spoke with Insurance Business on his career in the trade credit insurance industry, and he revealed that he is an industrial chemist by training, which perhaps explains his analogy.
“Jobs were few and far in between in the chemical industry,” he shared. “I ended up working in the States for a year, in a small chemical plant in New Jersey.”
He then returned to the UK and obtained civil service eligibility. Presented with a choice between the Inland Revenue and the Export Credits Guarantee Department, he chose the latter due to the travel opportunities.
“The lure of foreign travel first attracted me to the industry,” Cockerill said, admitting that he entered the trade credit insurance industry knowing almost nothing about it.
As time went on, he learned that the concept behind the industry is quite simple and has been around for over 80 years, having taken root in the UK between the First and Second World Wars.
“Simply put, it’s there to cover the seller, or the insured, against insolvency or default of its buyers,” he said. “We also cover political and sovereign risks, such as the lack of foreign currency at a sovereign level.”
Unlike other types of insurance such as fire or liability insurance, businesses are not required by law to take out trade credit insurance. This means trade credit insurers must exert more effort selling to clients.
“We’re quite unique, in that we actually want to pay claims,” Cockerill said. “The major reason our clients buy trade credit insurance is that they can sleep easily at night knowing that if one of their major buyers unexpectedly goes bust their business is safe against the debts owed by that buyer.”
Cockerill explained that Coface has a database of over 100 million buyers worldwide, which it is continually monitoring for exposures, and is present in 67 countries. He described 2017 as a period of “steadying the ship” for Coface, following two difficult years for the company.
“Our claims ratio was higher than we would’ve liked,” he said. “But that’s proving the worth of our product to the clients.” Most of these problems were centred on China and Singapore due to changes in trading policies, he elaborated.
“This year is about revenue growth and going full-steam ahead,” he said regarding the company’s trajectory, especially as knowledge in the market regarding trade credit insurance is now growing.
“When I first came to Hong Kong seven years ago, knowledge among CFOs and CEOs about trade credit insurance was at around 15%,” he said. “After seven years, that has gone up to around 40%, but that’s still a low figure.”
With trade credit insurers holding so much data on buyers and clients and new information from credit agencies coming in daily or even hourly, Cockerill believes that digitalisation is a welcome boost to the industry as it allows easier transfer of data between companies.
“We’re a big data user,” he said, adding that quick exchange of data is a big help in underwriting risks, given the fast rate of change in the global economy.
Having been in the trade credit insurance industry for over 21 years, Cockerill recounted the global financial crises of 1997 in Asia and 2007-2008 on a global scale.
To illustrate trade credit insurance’s impact on global trade, he revealed that in 2015, the industry insured goods and services valued at €2.3 trillion, which is larger than the UK’s 2016 gross domestic product.
“We needed to reduce our and our clients’ exposure to high-risk buyers to protect their balance sheets,” he said. “As an industry, we learned from the feedback of our clients and I think we became a better industry because of that. There are certain things that we changed and we would not do again.”