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Ollie Gordon discusses the state of the trade credit insurance and political risk insurance markets with some of London's top brokers.
The trade credit and political risk insurance (TCI and PRI) market is today arguably playing a greater role in facilitating global trade than ever before. And while the insurers are providing cover in increasing levels and thus allowing trade financiers to hedge against risks faced in the more precarious of jurisdictions, their role is in turn facilitated by the extensive and crucial work being done by insurance brokers.
Defining the boundaries
So what role do brokers play in the TCI and PRI market? Essentially brokers act as agents for the insured parties and assist on their behalf on the structuring, placement and syndication of risks. In that capacity, they either do one of two things: they assist in executing policies in the transactional space or they act in a consulting capacity, advising the client on how to assess, evaluate and quantify risks.
On the advisory side, brokers advise their clients on the availability of insurance and on the appropriateness of that insurance within the client's overall risk strategy. On the transactional side, brokers fulfil the role of market maker for their clients, educating underwriters about their client's business, essentially selling it to the insurance market.
The broker works for the policy holders in order to allow them to get what they need out of the market. Policy holders need the right cover, they need an effective placement, and if they have a claim they need it paid in full, on time and with the least possible fuss. The brokers role is crucial in all these aspects. In order to access the insurance market, whether you are a financial institution or a trader, you go through a broker. This is especially true for the Lloyd's market, as - unlike the company market - Lloyd's underwriters are not allowed to sell their capacity unless it is through a Lloyd's broker.
James Cunningham, a broker at Miller Insurance specialising in structured credit and political risks, illustrates the brokering process: "The broker gets engaged by a client, typically a bank, who is looking at lending to a borrower. The bank wants to mitigate the credit risk on...