TFD INITIATIVE – A TEXEL SPONSORED PANEL ON DIGITISING CREDIT INSURANCE FLOWS, July 2021

By Andre Casterman, Chair Fintech Committee, ITFA , Founder at Casterman Advisory and Member of ICC UK Legal Reforms Steering Group

The first half of 2021 revealed a new set of early adopters of TFD Initiative.

In June, we invited some of those early adopters for sharing their experience around the digitisation of trade credit insurance distribution flows. The following experts got on the ITFA stage:

Simon Bessant kicked off by sharing the path chosen by Texel which led to a partnership with Tradeteq as announced in January. “Tradeteq offers an automated platform where underwriters define their rules around issuing banks, pricing, concentration in countries/industries, … Trades submitted by banks on Tradeteq are checked in real time against eligibility criteria established by connected underwriters such as Liberty Specialty Markets”, explained Simon. In 2020, Texel took the decision to adopt Tradeteq’s market-wide solution (i.e. multi-bank and multi-investor) to digitise credit insurance flows with trade originators, and to combine it with a proprietary solution (called Connexion) that focuses on portfolio and data management across their clients insurance book. Simon shared more on Texel’s strategy based on below:

Both N L N Swaroop and Natasa Ruiter explained how important credit insurance is to the trade finance business at their institutions, HSBC and ING. Banks view credit insurers and brokers as long-term partners, and such relationships span various types of trade finance products. The objectives for banks include capital relief, concentration risk, risk mitigant, …

Huw then expanded on the direct benefits of digitising credit insurance flows as follows:

• the ease and speed of transacting and the removal of frictions increase transaction-level efficiency
• the rules based underwriting speed up and enhance the underwriting processes which support automation and increase pro-activeness
• using structured data on transactions and deals drives standardisation and enables automation too
• the opportunity to increase scale and volume in the area of short-term trade helps credit insurers balance their portfolio’s
• a fully digital and more proactive process contributes to an improved client service (e.g., more transparent process).

Additional benefits emerged from the panel discussion:

• The higher speed of the underwriting process is essential to go back to the clients as quickly as possible to close the deal
• Avoiding manual input by uploading electronic documentation and transaction details removes risks of rekeying and human errors
• Automation of internal processes is critical as well as the automation of the external dealings with clients and counterparties
• The additional analytics offered by the digitisation of the trade and credit insurance flows will delivery enhanced transparency which is critical for underwriters.

The risk related to the transaction is not changing however.

The panel identified three major opportunities as the industry continues to digitise credit insurance flows:

1. Technology will help credit insurers deploy more capacity by underwriting additional transactions that become more attractive thanks to enhanced risk transparency and an automated rule-based decision making process
2. The industry has the potential to benefit from harmonisation and standardisation by aligning around a common platform supporting the digitisation of the bank to credit insurers flows
3. Finally, the industry will also gain from more transactional insights that can be shared with regulators in aggregated form as part of the industry advocacy efforts.

The digitisation of the credit insurance flows will also benefit the intermediaries as brokers have the opportunity to move up the value chain and provide strategic advisory on market trends, counterparties and initiatives, rather than spending most time processing transactions.

The main legal challenge that the panel debated is around cross-border data sharing which requires more industry work and regulatory clarity.