Credit Insurance Policy

IMPORTANT POINTS TO REMEMBER WHILE BUYING THE POLICY

Insured should strictly adhere to credit limit offered to each buyer by the insurer as insurer's liability is restricted to credit limit:

The details of new buyers to whom the credit extended after taking the policy should be shared with insurance company:

The new buyers who have been extended credit after taking the credit policy will not be covered the policy if the the details are not shared with the insurance company.

Periodic credit turnover details should be submitted to insurance company:

Key Documents at The Time Of Claims

General Claim
Intimation Format

Immediate Action Client
Should Take

Indicative General Documents
for Settlement of Claims

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How the premium is computed?

The premium is calculated as a rate percentage on the amount of insured’s turnover i.e. estimated credit sales for the financial year. The policy commences only after the insured or the policy holder applies for credit limit on each buyer.

What kind of risk is not insured?

The credit risk that is insured has to have a direct link with an underlying trade transaction which is the delivery of goods or services. If no such direct link exists, the outstanding amount is not insurable under a trade credit insurance policy. For example you may not have a trade credit insurance cover late tax refunds by the government.
Can only some big Buyers be Insured?

You can insure debtors selectively. However, the insurer must have a clear view on all your debtors and must be clear that you are making a selection. They will want to know your rationale for selection of a few debtors. Quite often the premium rates for selective and complete cover are similar.
Is trade credit Insurance a type of Financial Guarantee?

A trade credit insurance policy is a conditional insurance contract between two parties that cannot be traded. A financial guarantee is unconditional, usually on-demand, and transferable. A trade credit insured risk is always directly related to an underlying trade transaction, which is either the delivery of goods or of services. The correct fulfillment of this trade transaction is essential for trade credit cover to exist.
How does credit insurance work as an insurance product?

Generally, it is recognized that 20% of a firm’s buyers account for 80% of sales. Credit insurance protects against the catastrophic loss resulting from the insolvency of one of those key accounts.

What types of losses are covered?

Your policy covers many loss situations, ranging from bankruptcy to uncollectible accounts.
If i incur a loss, how soon will a claim be paid?

Generally, the claim will be paid within 60 days on a domestic loss. Export losses may take a bit longer because of country waiting periods. However, if the export loss is an insolvency, it will be paid within 60 days of the date of loss.
What is the level of indemnity at the time of claim?

The level of indemnity typically ranges from 80%-90%; however, the level varies depending on the policy you select, your credit management experience, your accounts receivable portfolio, and your premium target.

What is the Trade Credit Insurance?

Trade credit insurance protects your business against both commercial and political risks that are beyond your control. It improves the quality of your business and helps you grow profitably, minimizing the risk of sudden or unexpected customer insolvency. Credit insurance gives you the confidence to extend credit to new customers and also improves access to funding, often at more competitive rates.
Who should buy trade credit Insurance?

Any company that sells goods and services on credit terms (i.e., extends credit to customers rather than requiring payment up front) and is exposed to the risk of non-payment.

Claim Case Study - 1

Situation

A footwear manufacturer supplier to traditional retailers. When online distribution started gaining popularity the existence of these retailers was threaten. The manufactuer found that these retailer were struggling financially and there was a high risk of failure.

Challenge

The manufacturier business started declining as it was not able to give credit to the retailer due to the fear of default.

Solution

Details of prospective buyers were shared with the insurance company so that risk analysis of buyers can be done and credit can be extended to them according to their worth.

Advisory/Conclusion

Credit Insurance Policy also evaluates the financial strength of the the customer thus enabling to decide whether the credit should be given or not.

Claim Case Study - 2

Situation

A garment manufacturer was giving credit to a large number of client

Challenge

The credit evaluation fo the customer of the garment manufacter was not done. Since the credit was given without evaluating the financial worth there was huge default in payment

Solution

Details of prospective buyers were shared with the insurance company so that risk analysis of buyers can be done and credit can be extended to them according to their worth.

Advisory/Conclusion

Credit Insurance Policy not only covers the default in payment it also advices to which customer the credit should be given.