Are SMEs finally about to get an affordable, effective credit insurance product? Article with Flemming Bengtsen from Nimbla.
According to the British Business Bank’s Business Finance Survey, over 60% of SMEs intended to use Covid-19 loans to help with their working capital management. The pandemic, and the uncertainty of the economic environment, has increased the risk for SMEs looking to protect themselves against bad debt and pressure to comply with extended payment terms.
We talked with Flemming Bengtsen, Founder and CEO of Nimbla. Nimbla provides invoice insurance, which makes sure your invoices are paid even if a customer becomes insolvent. They are one of the UK’s leading insurtechs, and have recently completed a funding round led by a Silicon Valley venture fund in conjunction with Barclays Bank.
We asked Flemming about protection for SMEs, how Nimbla is changing the way insurance is offered now and the future for SME finance.
What does Nimbla do?
We span different parts of the financial services industry, including insurance, fintech and lending. If we had to narrow it down, we would be considered an insurtech which provides trade credit insurance. What we have done is digitise and automate what is a very old and traditional corporate product, and dragged it into the 21st century.
Tell us about Trade Credit insurance and how you’re changing the way it is provided…
Traditionally, trade credit insurance is a broker-led product, where the broker collects lots of information from the corporate wanting to protect itself from bad debt. The broker then passes that on to an insurer, whose underwriters will spend days, maybe even weeks, analysing it to produce a proposal. The broker is likely to do the same thing with other insurers.
Each underwriter will look at the list of debtors and decide which ones they are comfortable about insuring, and price the policy accordingly. The broker may provide their client with a range of options but comparison is difficult as some insurers may include, for example, 80 out of 100 debtors, but others will allow 90.
In addition, many of these insurers will only look at large companies, where there is greater opportunity to write profitable business. If your turnover is below £5m then it’s unlikely they will be interested.
This inefficient process means that SMEs have found it difficult to access the protection they need.
How is technology creating efficiency and options for SMEs?
What we are trying to do is to create a much more flexible digital product, so clients can pick and choose what they want and build it themselves. They purchase the products they want online and, with no broker involved, it’s faster and more efficient.
Automation is the vital ingredient, though there are a lot of misconceptions about this.
What are the misconceptions about automation?
A lot of providers claim to provide fully automated underwriting. However, what they have is fully automated quoting, with human intervention before the price goes through to a completed policy. This simply isn’t efficient.
We have fully automated underwriting with no human intervention. This allows us to price policies on very, very small amounts, which means we can reach a particularly untouched segment of the market – namely SMEs.
Being able to offer SMEs single invoice insurance means that they can select the invoices they want and manually add them for a quote. The process can take as little as a few seconds, and that’s really the product that we developed.
Why has this not been done before?
Well, the reason it’s not been done before is that the insurance industry has been comfortable operating in the same way for decades and there has been insufficient appetite to restructure. People have looked at different options but have never concluded that they can profitably develop a solution.
The interest in fintech and insurtech over the last five years means that venture capitalists now recognise the opportunity and are prepared to invest in innovation. They tell me that what has attracted them to Nimbla is the fact that we’re so data driven. This is absolutely critical as they see that we can operate in real-time.
It’s not an easy thing to create though. We don’t have the balance sheet to write the business ourselves, so we have set up arrangements to have delegated underwriting authority. We hold the pen and control the pricing, but this won’t work if it’s someone else’s pricing and then there is the regulatory element to satisfy.
With our backers support we have created something which is going to change the way trade credit insurance operates.
Can you tell us about other inefficiencies in the industry?
What I have always found absolutely shocking in both banking and insurance is the inability, or lack of desire, to use their own data. Lots of large financial institutions accumulate masses of data but it sits dormant. There is no meaningful process to use it either for the benefit of their customers or for their product development.
Data use is one area. The second is the focus on big companies rather than genuinely helping smaller operators in industry. If insurance companies and banks can do a couple of big deals each year they make healthy returns with low levels of risk, but this approach does not encourage innovation.
We on the other hand are interested in innovation. I want to acquire the data because it will help us to help the SME sector, and enable us to grow and help larger companies in the longer term.
The Future – what does it look like?
I believe that there will be some standardisation in terms of invoice digitisation. Everyone talks about ‘Buy Now Pay Later’ but that’s all an invoice is. We’ve been doing invoices for a long time. There are lots of problems with invoicing that are peripheral to the problem that we’re solving, but they could all be solved by better digital invoicing, and that’s where I think it’s going and that’s what we really want to focus on.
It might not even be called an invoice in the future. Delaying a payment for goods and services is always going to exist because it manages people’s working capital. There’s always going to be a credit risk there. What needs to happen is that the process needs to become more efficient, and that’s what we’re starting to look at.
And what do you think the resistance is to faster uptake?
The main problem is lack of knowledge. People don’t know that credit insurance products exist as they’re exclusively available for large corporates. So, there’s an awareness problem. The other issue is people are just programmed to take the risk.
The product is now available and it’s really just a price consideration. As I always point out, there are reasons behind everything we price. If it’s a relatively high price, funnily enough, it’s because it is very risky so there’s good reason to protect yourself against it. But at least you have the option rather than blindly gambling with your company’s future.
It’s all about information. And many SMEs, I think, trade quite blind a lot of the time.
The other risk is that SMEs are always at the back of the queue. If things start to go wrong in a company, they’re the ones most likely to be paid late, or even not at all, because everyone else has more purchasing power.
To find out more about Nimbla check our their website here.
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