Robert J. Brixius (left) is president of Gerling Credit Insurance Agency. Uwe Schoberth is vice president and director of marketing.
Agents and brokers, especially in the current insurance industry environment where competition is fierce for "bread and butter" business, are constantly asking their carriers to design new products for them to sell. But sometimes, there are products out there, already in existence, but of which producers are unaware. According to experts, credit insurance is one such product. It is a very big seller in Europe. But, the experts say, it is a market that has barely been tapped in the United States.
The experts in this case are from the Gerling Credit Insurance Agency (GCIA), based in Chicago. Gerling Credit is part of the Germany-based Gerling Group, and the agency is only a few months old. Executives at Gerling are making a very big bet that the credit insurance market in the United States is ripe for significant expansion.
"We estimate that there is approximately $4 billion premium volume worldwide in credit insurance," says Robert Brixius, president of the agency. "Of that, there is only about $250 million written in the United States, even though the U.S. economy is the biggest in the world. We believe that there is a potential $3 billion in U.S. credit insurance business. That's why we consider the United States such an important market for us."
Perhaps one reason the credit insurance market in the United States remains relatively untapped is that very few people understand what the product is. One thing it is not is credit life insurance. Credit life insurance is a product purchased by a business owner who takes out a loan from a bank. If the business owner dies, credit life insurance pays off the debt. Another thing credit insurance is not is coverage that pays when an individual either loses a credit card or it is stolen.
Credit insurance, in fact, pays when a customer or customers default on payment of their debt. For example, let's say that a manufacturer of ball bearings has been supplying its product as a component to a multi-million dollar producer of roller skates. The roller skate manufacturer becomes bankrupt, owing a considerable sum to the manufacturer of the ball bearings. For the ball bearing manufacturer, the roller skate producer is an account receivable that may never be received. Credit insurance compensates the ball bearing manufacturer for the lost money, or at least a portion of it depending upon the terms of the policy.
Gerling executives Robert Brixius (left) and Uwe S. Schoberth say the market for credit insurance --which guarantees payment of a client's receivables--is poised to expand dramatically.
Credit insurance is always written on a co-insurance basis either as a specific percentage of the outstanding receivables or as deductibles. The form of coinsurance is negotiable and should fit the client's needs. Credit insurance, especially in international transactions, is often used as a substitute for a letter of credit. Letters of credit can be time-consuming and expensive for the buyer to obtain. Credit insurance, on the other hand, is purchased by the seller to make certain that the debt will be paid. The premium for credit insurance is based primarily upon a firm's insured sales.
"The Gerling Credit Insurance Group is the world's third largest credit insurer, with an income of more than $500 million," says Uwe Schoberth, vice president of the Gerling Credit Insurance Agency, Inc. "The Group covers a total trade turnover of $150 billion. It serves customers in more than 30 countries and provides classical as well as political coverage against default of private and public debtors located in approximately 120 countries.
"Approximately 60% of the Group's annual turnover is generated by foreign subsidiaries, co-operations and joint ventures," continues Schoberth. "This makes Gerling one of the most international credit insurance groups worldwide."
"When we decided to enter the American credit insurance market, we chose to make use of our company already here, Gerling America Insurance Co., rather than set up another one," says Schoberth. "Our agency does the underwriting and other servicing, but we use Gerling America paper. In other words, Gerling America is our fronting company. At the Gerling agency, we want to get the message out that credit insurance is a necessary product and that we are more than qualified to write the business. What we are really talking about here is trade insurance. We insure the performance of payment of our client's buyers."
--Robert J. Brixius
As for opportunities for agents and brokers in the credit insurance market, Brixius maintains that they abound. "Gerling works very closely with our agents and brokers in terms of our operations in property and casualty and inland marine insurance coverages," he says. "We want to do the same on the credit insurance side."
"In that respect, we are willing to work with brokers who have knowledge of the credit insurance market in the United States, but also with brokers who are not as well versed. For instance, we are more than willing to provide the brokers with expertise and information, as well as product training if they do not have credit specialists in house. Our strength is that we have more than 50 years of experience within the European community, and we are eager to share that knowledge with brokers and their clients."
The Gerling Group traces its history to 1904 in Germany and from that time the firm grew and branched out throughout Europe and overseas. It is a family-owned company, which is now in its third generation. "As our clients' demand for local service in the U.S. grew, Gerling opened its offices in the U.S.," says Brixius.
"Therefore, in the mid-1980s, The Gerling Group established Gerling America."
Initially Gerling's U.S. business was comprised of European-linked business, but it began slowly to move into the domestic market. Gerling intends to enlarge its U.S. product line by offering credit insurance. "We believe the market will see rapid growth--and soon," says Brixius.
Gerling America, the fronting company for the Gerling Credit Insurance Agency, itself boasts an A- (Excellent) rating from A.M. Best. Best says the rating reflects the company's good capitalization, new management, and renewed strategic focus on its core European-linked business. "The rating also recognizes the inherent benefits of being a strategic U.S.-based affiliate of Gerling-Konzern Allgemeine (GKA). One of the leading industrial insurers in the world," says Best. "The rating also acknowledges the company's long-term strategic role within the group and the importance of extending GKA's worldwide service capabilities to its clients operating in the United States. Further, the rating also recognizes the explicit financial support of its parent which, in recent years, has been in the form of capital contributions and significant reinsurance protections."
"Credit insurance in the United States domestic market is a very important part of our worldwide operations," says Brixius. "The purpose of the GCIA office is to strengthen the international network of the Gerling Credit Insurance Group and to serve our international credit insurance clients better by establishing local credit underwriting expertise and to penetrate the U.S. market. The U.S. clients will, on the other hand, benefit from our ever-broadening international presence.
Brixius continues, "The Chicago office will enhance Gerling Credit's presence in the Americas, following our 1997 participation in Continental S.A. in Chile. Also, the recent acquisition of the Mexican credit insurer Comesec plays a pivotal role in Gerling Credit's American strategy and will enable the Group to not only strengthen its operation in the NAFTA region, but to reinforce its strong platform in Latin America's credit insurance market to the benefit of U.S. exporters," he says.
"We believe that the credit insurance arena is ready for significant expansion. Agents and brokers can only benefit from this expansion," concludes Brixius. *
For more information
gerling.com
robert.brixius@gerling.com
uwe.schoberth@gerling.com
(312) 782-7052