Disruption in trade credit insurance under way as innovation and competition heats up

South Africa’s trade credit insurance offerings have largely retained their European roots, making them less than ideal for the local market, says Gareth Joubert, MD at Hollard Trade Credit.

“We have a matured trade credit insurance market but the product is still on a path to maturity,” notes Joubert. Companies that sell goods or render services need trade credit insurance to cover themselves in the event that the debtor is unable to pay for the goods obtained on credit which may in some instances present an existential threat to the seller’s business.

Joubert says the European operating environment is one characterised by low interest rates which negates the impact of longer turn-around times when settling a claim. “In a country like South Africa where inflation hovers around 6 percent, trade credit insurance clients need a quicker turnaround time because of the high costs of bridging finance, while the client awaits settlement on their insurance claim.

Joubert believes that the current market environment, where the product structures are very much a mirror image of what is available in European markets, has to do with the historical local market conditions. “For the longest time, South Africa had only two companies that offered Trade Credit Insurance, an environment not conducive for competition or innovation,” adds Joubert.

However, Joubert is optimistic about the future and is convinced that the market is already undergoing change that will benefit clients who need Trade Credit Insurance. “The number of companies offering Trade Credit Insurance in South Africa, including Hollard Trade Credit, has almost doubled, competition is heating up and this will inevitably lead to greater innovation,” says Joubert. He believes that as competition grows there will be a shift, albeit gradual, towards offerings that are more aligned with the demands of the South African market.

However, even though new and innovative products are slowly disrupting the Trade Credit market, clients are still not enjoying the benefit of this new re-alignment where product design is driven by a need to respond to client needs. “The Trade Credit market is one characterised by strong, long-standing relationships between client and service provider, innovations often go unnoticed as clients are not always open to new ideas outside their traditional ecosystem,” says Joubert.

Joubert is confident that considering the increasingly challenging business environment in South Africa and therefore the extreme risk that smaller businesses in particular can potentially face when debtors fail to pay, trade credit insurance will remain a top priority.