Credit insurance ventures: 7 key steps

Amid the current evolving global economic landscape, demand for credit insurance is on the rise. This is generating interest among new players in both the public and private sectors, who see an opportunity to develop new solutions and expand into untapped markets. Today, we outline seven essential steps to successfully establishing and operating a new credit insurance business.

1. Study your market

How are local businesses operating, and what solutions do they currently have available to them? 

Answering this question is key to understanding your potential customers and building the right solutions for them. This involves conducting a thorough market analysis to identify the solutions and providers that already exist in the market, and where there are unmet needs. As the primary applicants for guarantees, local and regional banks can also provide valuable insights on the demand for credit insurance. 

The ability to meet legal requirements will also play a major factor in the viability of your business, so researching the regulatory environment from the outset is vital.

2. Consult with experienced credit insurance professionals

Credit insurance is a highly specialised offering, so seek advice from professionals with experience in launching credit insurance startups. In addition to sharing first-hand knowledge, they can provide valuable input during the product development stage, and help you build effective risk and marketing strategies. They can also help with drafting policies, clauses, and specific conditions, and in evaluating your potential gross written premiums (GWP).

3. Collect and assess information

Gathering comprehensive financial information from international and local sources can help to establish connectivity and explore the feasibility of building local or regional credit scoring systems. It can also help you forge partnerships with governmental bodies such as Ministries of Trade or Finance, microfinance institutions, and public guarantee services for alternative data sources, which are crucial for risk assessment.

4. Choose your core business operating system 

Selecting the right operating systems partner is critical. Established digital platforms with proven success offer scalability and flexibility and can reduce the cost and ongoing resources of building and managing your own operating system. For robust operational support and to manage any knowledge gaps, also consider outsourcing your risk underwriting to specialised providers that are recognised by reinsurers.

5. Establish reinsurance arrangements

Developing a sound reinsurance strategy is essential for mitigating risks. Credit insurance startups often operate under a Managing General Agent (MGA) structure, operating on behalf of insurers or reinsurers, and underwriting policies without bearing the risk themselves. Leading reinsurers (such as Swiss Re, Munich Re, Hannover Re, and SCOR) will require you to present them with a detailed and credible business plan, evidence of your ability to operate robust workflows and processes, and are likely to be highly selective. To diversify your risk exposure, consider working with local and regional reinsurers as well. You may also need to engage a reinsurance broker to negotiate favourable terms.

6. Engage with regulators

Navigating regulatory requirements is key. Proactively engage with regulatory authorities to discuss your credit insurance plans, ensuring you demonstrate a well-structured reinsurance treaty and compliance readiness. It may take 12 months to secure the necessary licenses and approvals before commencing operations.

7. Prepare your ‘go to market’ strategy

Build your core team of experienced credit insurance professionals. These should include an Underwriting Sales Director, Head of Risk Underwriting, and Claims Manager. You will also need to develop a robust branding and communication strategy and confirm the timelines for your market launch. How your internal resources align with your communication and market entry strategies will be a determining factor in the success of your launch, so connecting these should not be overlooked.

Success beyond launch

Successfully launching and sustaining a credit insurance business demands strategic foresight, meticulous planning, and effective execution across all stages – from market analysis and product development to regulatory compliance and market entry strategies. 

Tinubu has supported the launch of several new credit insurance businesses. For a detailed guide, download our white paper: Launching a new credit insurance venture.