What is making the Canadian trade credit insurance market challenging?

The high cancellable coverage rate is just one reason

What is making the Canadian trade credit insurance market challenging?

Insurance News

By David Saric

The Canadian trade credit insurance market is experiencing a tough period right now, according to Peter Graham, president of Red Rock Insurance Services.

“One of the key factors to why this is happening is the high rate of cancellable coverage that is written within many policies,” Graham said.

“It is currently at 90%, whereas in the United States, it is only at 50%. Carriers have the ability to come off risk, which ultimately creates these gaps in coverage.”

In an interview with Insurance Business, Graham spoke about other trade credit challenges and how Red Rock’s partnership with The Insurance Company of Prince Edward Island (ICPEI) is looking to provide solutions.

Recognizing various unfavourable developments in trade credit insurance

According to Graham, the Canadian trade credit insurance market has always been in a state of volatility.

“Product offerings within the country are dominated by large, multinational players, whose coverage is mostly cancellable,” he said.

“This characteristic, which also imposes a shorter notice period of making a drastic change to a policy is driving this widespread condition.”

In 2018, Lloyd’s took aim at trade credit insurance as part of its decile 10 review, which flagged its worst performing product lines.

“This has greatly affected capacity and gave a black eye to the product line itself,” Graham said. “That led to sweeping changes within the Lloyd’s market.”

COVID-19 did not help matters, as enthusiasm for supporting a product line where the triggering event is insolvency was a hard sell.

In another blow to the market, the Export Development Canada (EDC) announced that it was exiting the Trade Partnership Insurance program, which offered supplemental coverage on Canadian buyers.

“The EDC was functioning as a top up program for the private market on Canadian-based buyer risk that they were not comfortable with,” Graham said.

“With that program concluded, gaps in coverage that did exist in the private sector that were addressed through the government will no longer have that benefit or option.”

Finally, the high interests rate tied to inflation, an economic slowdown, as well as a 34% uptick in bankruptcy filings in the first six months of 2023 have also proved to be problematic.

“They have full support of our underwriting capabilities” – Red Rock on trade credit insurance partner

To provide some relief to extremely challenging conditions in the market, Graham and the team and Red Rock were looking for a partnership with a knowledgeable Canadian firm to offer its clients options.

“We decided to work with ICPEI because they’ve been functioning in Canada for a long time and have great expertise,” Graham said.

“Also, they have full support of our underwriting capabilities that we’ve built since 2012.”

Through the ICPEI, Red Rock is able to make decisions in-house on the maximum limit of liability available with the company.

“There is no need for a referral to a US-based head office, it’s all done here,” Graham said.

Additionally, some of Red Rock’s multinational competitors have aggregate exposure accumulating globally, which means these companies would need a shared aggregate exposure limit.

“With that shared aggregate exposure limit, what we can offer is sometimes limited because of what other players have done in different markets,” Graham said.

“We now come with having full aggregate exposure limit at our discretion.”

Red Rock’s offering includes a non-cancellable policy that includes 12 months where all shipments are covered, as well as an additional 12 months to address any issues that result from shipments made during that period.

“As a result, the underwriter knows the importance of the buyer limit decision for each client and what they’re trying to do as a business generally,” Graham said.

How are you navigating today’s trade credit insurance market? Let us know in the comments below.

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