46% of UK invoices are paid late; a major problem for businesses of all sizes and the reason Trade Credit Insurance (TCI) has surged in popularity in recent years. In the first three months of 2019, 5114 claims were made by UK businesses – the highest quarterly rise since 2009. Experts are predicting another spike in winter 2020, as businesses seek liquidity in the COVID-riddled economy.
TCI is an integral part of many lenders’ business model. That’s why we offer integrations with a wide range of insurers within our working capital operating system. But while the idea of insurance against non-payment sounds like a no-brainer, the reality for lenders and their clients can be more complicated – something we’ve explored in our other articles on the topic.
2020’s uniquely challenging economic storm is the perfect opportunity for TCI to prove its value and become ‘the norm’ for even more businesses, helping them shelve risk and continue trading. Before that happens, however, the sector needs to shake off certain limitations.
Happily, the impact of coronavirus and the rise and rise of insurtech is accelerating these much-needed improvements, as we discovered in our latest podcast interview with Nimbla CEO Flemming Bengtsen. Nimbla provide a breakthrough single-invoice insurance and collections service, handled via an easy-to-use digital interface.
Today, we’re busy embedding Nimbla’s technology into our working capital software for lenders and their clients.
What other improvements to trade credit insurance can lenders and clients look forward to in 2021 and beyond?
1. Fresh platforms
The insurance sector isn’t known for being tech-first. For Flemming Bengtsen, the industry’s below-par digital offering must catch up with other sectors – fast.
In our interview, Flemming recalled his first impressions of the TCI industry and its’ then-backward technology. “I stumbled across credit insurance and I thought, what a great product”, he explains. “But when I dug into it, I thought, what an incredibly antiquated product. It just felt like it was in the Dark Ages and was in need of a refresh”. For Bengtsen, clunky claims journeys needed a digital make-over.
Today, 90% of middle-age adults use smartphones to contact businesses for customer service. According to a study by Microsoft, 80% of them are more willing to buy from businesses that have a mobile-first presence. Offering an easy-to-use digital interface is therefore no longer a nice-to-have for insurers. It’s required for survival.
“I see challenges in how insurance is done and what we're squarely focused on at Nimbla is digital,” says Bengtsen. “We're not interested in anything that's written on paper; that would just be going backwards. We're interested in stuff that is fully digital”.
While some incumbent providers have struggled to embrace insurtech, others are using tech-first platforms to stand out. In coming years, expect to see a widening gap between firms who take advantage of innovative technology and those who struggle to survive.
2. Less administration, more automation
As well as facilitating a simpler, more satisfying user-journey for customers, improved digitalisation and automation helps insurers’ back-office operations too.
“One of the things I found really baffling when I looked at credit insurance was the amount of admin that's required to service a credit insurance policy”, says Flemming. “I think the only way you can do that in 2020 is through something that’s truly digital. As insurers, that will allow us to underwrite better. It will give more transparency in terms of cover price and will lower that price because there's less people involved in managing the policy. People are what cost insurers money; anything that's not automated. That's the beauty of digital”.
Flemming’s vision for Nimbla is far-reaching: “We want to get to a point where we have enough data and integration and validation checks done automatically that we’re able to say to clients; OK, this business has gone insolvent, they’re on your books but you’re covered, and we’ll pay within 3 or 4 days. Or, that your customer is late to pay by a known number of days, so we’ll pay directly to your account.”
3. More startup partnerships
When it comes to transforming TCI, a sticking point for Nimbla and other insurtech innovators is cash.
“The UK Government has implemented a Trade Credit Reinsurance Scheme, which I think is a tremendously good thing”, says Flemming. “As a platform, however, we remain beholden to the insurance carriers that sit behind us. We don't have our own balance sheet to lend or regulatory capital to write risks against, so we have to borrow someone else's.”
For Flemming, this inter-dependence between carriers and technologists has created a system which is limiting for lenders and businesses. “Platforms like ours have to stop short of saying there's a problem with this customer, for example, or this debtor”, he explains. “But what we can do is say to our clients that if their risk changes up or down, we’ll provide this information through our pricing in real time”.
Like other insurtech providers, Nimbla are focused on increasing transparency for their clients by offering improved automation, live data and more. As the sector matures further, we’d expect even greater collaboration between successful insurers providing risk information and capital, and the technologists best placed to improve the client experience through digital innovation. Done right, startup-insurer partnerships are a winning combination, as Nimbla’s own partnership with QBE shows.
4. New products for today’s businesses
2020 should be the moment for trade credit insurers to ask whether their products reflect their customers’ needs.
It’s not only clients’ expectations that have changed in recent years; their operating models have, too. Gig workers and online service providers have very different needs to the businesses of yesterday. The types of TCI offered to these businesses must change, too.
“I think trade credit insurance has to evolve into solving slightly different problems”, says Flemming; “We're working with a provider to explore parametric insurance solutions which will effectively address cash flow gaps, for example”. Parametric schemes pay out when a trigger event occurs – like a natural disaster or pandemic – rather than being dependent on a business’ actual loss.
Elsewhere, studies have shown how shorter, more flexible and more tailored TCI policies can support businesses in the gig economy. Insurers must consider businesses’ changing needs with progressive schemes like these or face an uphill struggle. The writing is on the wall for insurers, with a stark 2019 EY study finding that traditional insurance cover models will not survive into the future.
New decade; new normal
Similarly sobering research by Deutsche Bank finds that the ‘Era of Globalization’ is over, with 2020 ushering in a new epoch: ‘The Age of Disorder’. The paper predicts old norms being turned on their head, with money redirected to younger generations, planet favoured over profit, worsening social unrest and a day of reckoning for political leaders. Insurers must prepare themselves for shifts like these – a view echoed by Flemming in our discussion: “We're looking at a completely different model for our economy going forward. It's going to be very interesting but it's also going to have a lot of casualties, unfortunately”.
The impact of coronavirus on insurers cannot be underestimated. Thanks to COVID, we’ve been rocketed into the future, and TCI providers who are not onboard now will have no chance of catching up later.
“Everyone will have to adapt”, says Flemming. “That change is probably going to be a good thing, I hope, bringing in a new age of disruption”.
We’re ready. Are you?
To hear our interview with Nimbla CEO Flemming Bengtsen, click here. To find out more about the credit insurance integrations available with our working capital operating system, email firstname.lastname@example.org.