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Cinque in the News

Business Day publishes an annual Credit Insights Report which analyses the state of the credit industry, highlighting trends and changes that risk decision-makers need to be aware of. Stefan Schoeman, co-founder of Cinque, was interviewed for the report, for his views on the changes taking place in the industry.

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Industry set for shake-up as new players bring alternative offerings

The credit insurance landscape in SA is changing significantly as new entrants come into what has been, up until now, a relatively limited market.

Stefan Schoeman, co-founder and director at Cinque, says until recently there have only been three underwriters in this sector, with Credit Guarantee being the dominant player followed by Coface and Lombard.

“The entrance of new players to the market has significant implications for the industry and clients,” Schoeman says. The past 12 months have seen a significant shake-up with the entry of a new underwriting company, Credit Insurance Solutions. International underwriter Euler Hermes is also expected to be fully operational in SA by the end of the first quarter of 2015 and there are rumours of another international player launching in the year.

“Africa is a growth market, and SA is the logical gateway to sub-Saharan Africa, and there are a number of other elements that make our local market attractive to foreign players. With sluggish growth in the eurozone, European companies are looking outside their traditional markets for expansion. The South African credit insurance market is dominated by CGIC, the outright industry leader, and their success over the past few years has attracted the attention of local and international competitors,” Schoeman says. He says the continuation of tough economic conditions makes credit insurance relevant in today’s market, but on the flip side of the coin, with a slowdown in the economy bad debts increase which in turn increase claims and reduce underwriting profits.

“The current economic climate lends itself to more companies insuring their debtors’ books, and we have seen an increase in companies enquiring about credit insurance. However, it is not a case of the market growing significantly but rather insurance companies seeing the potential of participating in the market due to the limited number of underwriters. The existing market is about R800m to R1bn in premiums written, which is much smaller than traditional short-term insurance.”

He says new entrants are eager to gain market share and would typically do this with reduced premiums and potentially alternative product offerings, which are both good for buyers of credit insurance.

“Despite these dual improvements, we would not encourage clients to change their credit insurance provider unless they are certain that the underwriter demonstrates intimate knowledge of the industry in which the client operates, knowledge of the client’s market, quick response times on credit limits and an ability to maintain the quoted level of premium in the medium term,” Schoeman says.

New entrants, especially those from foreign markets, may also be willing to entertain alternative products to gain market share. He says this is great for the industry, as the lack of competition in the South African market has led innovation around policy structure and new products to stagnate somewhat.

“The industry as a whole will also benefit greatly from the increase in competition, as it will give brokers the opportunity to showcase their independence and brokers who are not truly independent will quickly be exposed, which is an enormous advantage to clients.”

He says one of the typical industry concerns is capacity, and this should be alleviated with new entrants bringing more capacity. New entrants may also be willing to look at insuring specific risks only, where the current offerings focus more on a comprehensive insurance product. He says the market is also looking for real-time limits and IT interfaces between insurers and policyholders.