Credit Insurance – Available Options
One misconception about credit insurance that I see frequently in talking with companies that are looking into it for the first time is that they assume that the insurance company will require that they insure all of their receivables. Historically, credit insurance companies focused primarily on promoting these “whole turnover” policies. For them, whole turnover programs are attractive in that they provide the broadest spread of risk, and the largest premium. For many Insureds, whole turnover programs provide their intended value, giving broad based protection utilizing “discretionary coverage” that enables companies to self-approve coverage on smaller exposures, and use the insurance company to approve credit on the larger customers. These policies are good tools for companies that are looking to grow sales, that have adequate credit controls and procedures in place, and that have a large number of customers at small to mid sized exposure levels that they want to insure.
However, there are many other ways to structure credit insurance policies besides using a whole turnover concept. For example, policies can be structured using a “Key Account” concept – isolating your top 10, top 20, top 4 customers, whatever your objective is, and tailoring the policy to just cover these customers, effectively using credit insurance as a hedge against a significant or catastrophic bankruptcy. Policies can be structured to cover export business only, or only sales made by a specific division of your company, sales into a certain trade sector, single exposures on either an ongoing or one-off basis, exposures excluded from your securitization program due to concentration issues, etc.
There is a tremendous amount of flexibility in how credit insurance policies can be structured, and a number of techniques that can be used to arrive at a policy to meet your risk transfer and premium spend objectives. If you have a specific objective in mind for using credit insurance, give us a call to discuss.