A Bright Future Built on Resilience, Embracing Digitalisation and AI, and Empowering the Next Generation of Credit InsurersThe Berne Union is the industry body of the International Union of Credit and Investment Insurers, of which ICIEC is a member. Despite the geopolitical tensions, the sluggish global economic recovery, and supply chain disruptions, 2023 was a “huge” year for export credit. BU members provided over USD3 trillion new support for international trade in 2023, expanded across business lines. All this happened under the stewardship of Ms. Maëlia Dufour, President of the Berne Union, and seasoned credit insurer in her other role as Chief International Officer, BPIfrance Assurance Export. With her two-year term ending on 31 October, Ms. Dufour discusses with Mushtak Parker in an exclusive interview in her capacity as President of the Berne Union, the state of the credit and investment insurance industry, the challenges of digitalization and AI, the economic power of gender balance, the priorities going forward, but at the same time looking back at the achievements of the last two years
In the context of an increasingly fragile risk environment, a subdued and fragmented economic recovery, and increased geopolitical tensions and uncertainties, what is your outlook for the credit and investment insurance industry for the rest of 2024 into 2025?
The year 2024 has thus far been a very encouraging one, with record volumes of credit and investment insurance business. There is a big demand for incentives in trade finance and underwriting green and transition projects. We have also seen a big increase in demand for domestic products relating to supply chain requirements for critical raw materials and foodstuffs. We are proud of our achievements given the global uncertainties and geopolitical tensions. The world is not really turning around.
One observation of our members is that contract timeline is longer and therefore contract close takes longer. The contract pipeline is dominated by big ticket transactions in defence, aviation and cruise ships, and other sectors too. But the two top priorities in demand according to our members is a big increase in demand to underwrite SME business and all aspects of climate related projects involving green and transition projects. Another priority that often comes up is digitalisation and AI with the aim of simplifying and speeding up the process for clients to give answers quicker, communicating and matchmaking between exporters and buyers.
We are seeing many potential disruptions in supply chain such as the trade route disruptions in the Red Sea (due to the conflict in the Middle East) and the Panama Canal (due to severe drought), and of course the conflict in Ukraine, the subdued global economic recovery and GDP growth. To what extent have these factors affected the industry and the business of your members?
Our members have been around for many years. They have been faced with several crisis before including the financial crisis of 2008, the Middle East Crisis, the COVID-19 crisis, the Supply Chain Crisis because of the Ukraine conflict. What we have realised is that we have always been very resilient, and always been there for our clients. During crisis we always ask clients about their needs. If the need changes, then we brainstorm and create new products. As such we have come up with new products depending on the various tensions.
If we look ahead, we have had a record number of general and presidential elections in 2024 in various parts of the world. We are all looking ahead to the US elections in November 2024. This is the one that counts. In other markets such as in Africa, we have the sovereign debt issue. As a result, it is true more exporters are asking for support and guarantees on African contracts. There is a lot of risk involved, but being an insurance provider, you must take risks.
Ukraine is very important. Many ECAs have signed MoUs with Ukraine to tell them we are ready to help in the reconstruction of the country. I know some governments have provided big loans for Ukraine, but the biggest problem we have heard is that there are some short-term contracts, but we don’t have any demand for medium-and-long-term contracts. The reason is that onsite visits especially for projects such as hospitals and roads are important. You need to have people on the ground. But because of the conflict, the security of the people is at risk. In France, for instance we look at this security issue very tightly compared to some other countries. The security of staff on the ground is a major concern for members of the Berne Union. Another problem is that they would find it difficult to get financing from the bank, unless the bank is 100% covered. BU members however have expressed their will to help in the reconstruction of Ukraine.
Developing countries consistently stress the high cost of credit and investment insurance which deters market entry and penetration. They talk about exaggerated risk perceptions of the international credit rating agencies about their markets which they say is unfair. This has led to the payment of extra premiums and higher cost of finance. Do you think that developing countries are getting a fair deal on credit and investment insurance and is there a two-tier system in pricing risk between developed and developing markets?
It is true that the cost of premium is a major issue. As you know we follow the OECD rating scale of Categories 0 to 7. If the country is rated 5, 6 or 7, the premium would be higher. It is a decision taken by economists inside the OECD. We cannot tell them why you rated a country 6 and not 5. Not surprisingly, it is the country that says we deserve a 5 and not a 6 rating.
You are right this is an issue for the developing countries, but we must take it as it is. Talking about a premium, Ukraine was saying that their premium was too high. They are at war, so they are in Category 7. They would like to be in Category 6, but we must comply with the OECD rating.
You have flagged climate action and finance as a key priority for Berne Union members. Especially as the world approaches COP29 in Baku. What about other areas such as food insecurity, post-pandemic health systems and clean energy transition?
We deal a lot with clean energy transition projects and green projects. Regarding climate action and finance, we look at three things: i) Decarbonisation of our portfolio, ii) Creating financial incentives to better insure green and transition projects, iii) Government policies and strategies and considering the statements of the various COPs.
Food security is very important. Some members do short term underwriting of agriculture business and for healthcare projects, both of which we support. There have been discussions with the OECD to give some financial incentives in support for healthcare contracts.
The phasing out of fossil fuels will take some time. The credit insurance industry is no longer interested in underwriting the coal, oil and gas industries. There are some countries that have been very clear in that that they will not support investments in fossil fuels. There are new emerging sectors such as critical minerals – nickel, manganese, lithium, cobalt etc. We see greater movement in this direction, and it is now becoming a priority sector for our members.
How important is adopting digitalization in across-the-board applications for the de-risking industry to embrace the defining challenges in the world – trade, investment, food security, climate action, clean energy transition, mitigating catastrophic climate events and natural disasters? Generative and/or extractive AI, Blockchain and Tokenisation are the great disruptors currently albeit they are all at their nascent stages of evolution. Digital trade has grown rapidly reaching USD4.25 trillion in 2023. The passing of the UK Electronic Trade Documentation Act 2023 is fast gaining traction as a global model. What are the implications for trade, trade finance and trade insurance ecosystem?
I can tell you no one ignores the challenge and opportunities of digitalisation. Nevertheless, the biggest markets such as the UK, France, Germany and so on can invest in digitalisation infrastructure and the cost is always very high especially for IT budgets. Some of the smaller nations such as Poland are very much advanced in digitalisation despite their size. Everybody wants to digitalise. We also have the rapid emergence of generative and extractive AI, Blockchain and Tokenisation. The Chinese are more advanced in this. They know that it is a pain for the client to have to write down the information on an application form. If everything is digitalised, then it goes quicker for them. Digitalization is vital for our clients and of course for the teams working inside the insurance institutions. There is a correlation between the increase in digital trade and uptake of digitalisation in insurance institutions.
Of course, we must look at AI and its applications for the credit insurance industry. We must use it in an appropriate manner. It is too early to say how it will impact the industry because we are still at the early stage. Everything is moving so fast. We must catch up otherwise we might be left behind. For AI, I can see an adoption timeline within the next year. There is also the issue of cybersecurity, online fraud and the various emerging risks. A lot of Berne Union members are looking at this. It is a very important issue for our members.
What is the current state of women in credit and investment insurance including among BU members? What measures are the BU and its members adopting to enhance the role of women in the industry across the spectrum?
I am very happy about the status and role of women inside the Berne Union. We have had three women serving as President consecutively for the last three terms. My term expires at the end of October 2024. The next President I believe following the annual meeting will be a man. In the industry, there are almost as many women as men. There is a balance between men and women. It is true when it comes to executive members, it is dominated by men. Nevertheless, if I look at some of major ECAs then there are several women who are Presidents. In our industry there is not really a problem of gender balance.
The latest OMFIF Gender Balance Index 2023 relating to central banking and financial services concluded that although progress has been made, the gap between men and women especially in senior positions in finance is still huge.
I can tell you only what I see inside the Berne Union – the dignity and institutional culture we have with almost 300 people working at the organisation. We create a working group if we have a problem. When there is no problem why create a working group?
One thing I am very passionate about is our Young Professional Group of credit insurance cohorts because they are the future, the next generation, and about how to retain new talent. I have supported a positive engagement with our young professionals, establishing and encouraging them to speak at panel discussions, sometimes including with senior professionals. The young professional working group is about 100 strong. They learn from managers who attend the panel discussions on a range of topics – from products, processes to even human and wellbeing issues. I told them I don’t want it to be only top down but also bottom up. From their feedback, the defining areas of interest are digitalisation and the onset of AI.
The Berne Union is celebrating its 90th anniversary and ICIEC its 30th anniversary. ICIEC is a multilateral insurer with 50 member countries which uniquely operates under alternative Islamic insurance principles. Do the two institutions have something to learn from each and further their cooperation?
I am very happy ICIEC is a member of the Berne Union. We have members from all areas of the world, so we can learn more about their countries and institutions. It is very important to have member ECAs from all over the world. At the next annual meeting, our Chief Economist will give us an industry update from all parts of the world. There will be a member from the Middle East who will give an update on the region.
There is one thing that is very important inside the Berne Union in that before the annual meeting we send surveys to all members for them to tell us how they are organising, developing new products, what are the figures in ST and MLT business, for investment and so on. We get to learn a lot from these surveys. If there is something ICIEC has written as a new product, for example, another member might ask for more information. We have a lot of exchanges and networking at the annual meeting. We ask the members to give us some feedback on what they would like to talk about to create breakout sessions. I encourage ICIEC to write down what is relevant for them in the survey, so that we can take it into account.
Often the perception is that credit insurance is too expensive, so we won’t bother with it. The culture of credit and investment insurance and market penetration is still underdeveloped especially in the developing markets. What is the Berne Union doing in general in spreading the message of credit and investment insurance?
I agree about the perception that credit insurance is too expensive. It is difficult to ride seven horses at the same time. We do what we can. I think we have done it well. But there is always room for improvement. We do interact with peer international institutions such as the IMF, World Bank, OECD, WTO through speaking at conferences on these issues.
I think we must improve on our communication and engagement with member ECAs. During my presidency I have been asked to speak at many conferences which I have done. This contributes to spreading our message and what we can do for export trade and insurance. Another of my objectives is to leverage the huge data resource we have at the Berne Union and communicate much more what we are doing and how we can help.
As you come to the end of your two-year term in office as President of the Berne Union at the end of October 2024, what will be the legacy of Maëlia Dufour? What are the achievements you are most proud of?
I am very proud of what we have done on climate action, especially in facilitating green projects and transition, and giving financial incentives for such projects. I am also proud of the Young Professional Group I introduced at the Berne Union to ensure continuity and the next generation of credit and investment insurers, and to ensure knowledge transfer to them.
I am proud of the extensive data resource we have developed at the Berne Union. Every member must report its data. I am also proud of creating a much more interactive AGM where we can engage on a whole range of issues. I call them my export family. I am confident that the Berne Union will continue to excel as the voice of the industry, articulating its successes, achievements, and concerns whether in technical matters, product innovations and emerging risks.
Last year, our members underwrote USD3 trillion of trade and investment business. I expect this to increase over the next three years. I have been in this industry for decades and have come across many crises. The fact that we are still in business, reflects our resilience. I am sure we will come across other crises. If I look at the figures for the last two years, business insured in fact has increased despite the impact of the pandemic or Ukraine. The defining impacts which have affected our business are geopolitical tensions and climate change. Before the Ukraine conflict, our members did a lot of business with both Russia and Ukraine. The war has stopped all that.
