KBank expects to see boom in trade credit insurance
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Because of growing risks from natural disasters and increased economic volatility, Kasikornbank expects huge growth in its trade credit insurance services for corporate and small and medium-sized enterprises.
Entrepreneurs need to purchase more trade credit insurance to counter these growing risks. As a result, KBank aims to triple its premiums from this product to Bt300 million this year. The bank plans to provide all types of risk coverage to serve market demand.
Songpol Chevapanyaroj, executive vice president of the bank, said yesterday that the strategy for corporate and SME bancassurance this year was to enhance Thai enterprises’ awareness of the use of trade credit insurance to reduce risks by guaranteeing trade transactions.
Other factors expected to encourage Thai enterprises to buy more of this type of insurance include the impacts of the euro-zone crisis, and anticipated fallout from the Middle East turmoil.
“We have advised traders to learn more about the importance of trade credit insurance, which should be considered part of their operating costs,” he said.
Trade credit insurance covers traders against the risk of payment defaults by buyers. Premiums are lower than letter-of-credit fees. KBank’s insurance, however, does not cover trade with five countries – China, the United Kingdom, Russia, the United States and France – because of high risk of war.
Garment and information-technology products are deemed highest risk. Traders in these businesses pay the highest fees, while frozen food is considered low-risk.
KBank’s corporate and SME customers have trading value of Bt2.5 trillion, but its trade credit insurance business covers trade worth only Bt35 billion, so penetration is still considered low.
Letters of credit are used by 30 per cent of traders, advance payment by 20 per cent and 50 per cent is open account.
Premiums generated from trade credit insurance account for 20 per cent of KBank’s total non-life insurance premiums. The bank also expects the value of its non-life insurance products to triple this year, deriving from marine-cargo, engineering and liability insurance.
He said non-life insurance premiums contributed by its corporate and SME bancassurance businesses are lower than premiums from life insurance. Premiums from corporate and SME bancassurance this year are projected to grow by 45 per cent to Bt5 billion from Bt3.5 billion last year.
Songpol added that insurers could not offer flood protection under industrial all risk (IAR) policies. Thai corporates and SMEs are expected to buy more life and non-life insurance policies to reduce risk, allowing the insurance industry this year to grow at least 10 per cent, he said.
