TRADE CREDIT INSURANCE COVER

the Benefits of Credit Insurance Cover

• Provides a safety net against the non-payment of a trade debt, be it insolvency or protracted failure to pay.
• Allows an insured to trade confidently with both existing and new customers, and to have the ability to penetrate new markets with confidence.
• Prompt replacement of working capital
• Monitors the financial health of your key customers on a regular basis
• Known Bad Debt Reserve
• Assistance in the collection of overdue accounts
• Banks and trade financiers recognise Credit Insurance as a plus point, possibly having a more favourable reflection on lending terms.
• Peace of Mind.

Types of Credit Insurance Cover

There are four main types of credit insurance:-

• Whole turnover, UK only, Export only or combined
• Catastrophe cover
• Single risk cover
• Principal customer cover

The following is a brief explanation of each:-

Whole Turnover

The Whole Turnover policy is the most popular policy accounting for the majority number of policies issued. It normally protects all sales under a single policy. The policy provides the credit manager with up-to-date financial advice on all principal customers. Generally the insured will carry the uninsured element of each credit limit. Normally indemnity is 80-90%.

At commencement of the policy an assessment is made of turnover likely to be declared under the policy. The underwriter will agree an annual premium rate charged against such declarations.

Catastrophe Cover

Catastrophe Cover is offered by a number of underwriters in the UK and is only suitable for companies with a significant turnover, the policy structure protects against the catastrophe risk. Sometimes called the “Excess of Loss” or “Stop Loss Cover”, the underwriting philosophy is centred on the insured’s existing in-house credit management controls.

The insured will agree a “First Loss” or non qualifying loss designed to eliminate predictable lower level losses, Bad debt losses in excess of this level accumulate within a second pre-determined band or layer, referred to as the annual aggregate.

A layer of cover is then purchased in excess of this self-insured proportion. Cover of up to 100% of each qualifying loss in excess of this annual aggregate is available.

The cover is normally fixed up to an agreed ceiling of annual losses, known as the maximum liability. With a pure catastrophe policy the underwriter sets no credit limits, and the policy relies completely upon the insured’s own credit management.

Single Risk Cover

This usually for just one single buyer (possibly 2). This type of cover is offered by a limited number of underwriters, often Lloyds based, and could be utilised where a buyer concentration issue results in a less than even spread of risk.

Principal Customer Cover

Occasionally a small proportion of customers may represent an inordinately large element of a company’s turnover. Cover is only on customers above an agreed level of exposure and premium is only paid on the declared turnover with these customers. Usually, underwriters have to agree cover on all these key accounts and there is no Discretionary Limit.

 

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+ Click here to view & complete +
the ContinuumIB Trade Credit Insurance Cover Questionnaire

(Questionnaire in Adobe PDF - filesize: 740kb)

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If you would like further information or to discuss your Credit Insurance cover requirements please contact:

or

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Trade Credit Insurance - Glossary of Terms

Adverse Information
Events or circumstances that have led or may lead to deterioration in the financial situation or creditworthiness of a buyer or a country of a buyer.

Annual Aggregate Deductible
The Insured aggregates the claims until he has borne the aggregate first loss mentioned in the policy schedule. Underwriters are liable for losses in excess of the aggregate figure and will pay the insured percentage of each admitted claim up to the policy limit of liability.

Binding Contracts
An order from which the insured cannot be released if the buyers financial soundness is deteriorating. Under pre-defined conditions, credit insurance may be offered for such contracts even after the withdrawal of the credit limit.

Consignment Stock
Possession of goods by a consignee with the obligation to pay the supplier after the sale to a third party or when using the goods.

Datum Line
An amount below which buyers are not to be included in the insurance policy.

Discretionary Limit
The amount up to which, according to given guidelines, the insured may set a credit limit without specific review by the insurer.

Indemnification
Compensation for a loss.

J.C.T. Contracts
The Joint Contracts Tribunal produces standard forms of contracts, guidance notes and other standard documentation for use in the construction industry.

Long Term Contracts
Whereby the insured is contractually bound for a longer period than their normal terms of payment.

Maximum Extension period
The maximum due date extension allowed under the policy.

Maximum Liability
The maximum amount that the insurer is liable to pay in respect to all losses during a policy period.

Maximum Credit Terms
The longest credit period approved for a buyer under the policy.

Minimum Retention
In the event of a qualifying loss, the Insured retains for their own account the Minimum Retention or the uninsured percentage whichever is the greater.

Other
Any other form of contract entered into apart from those already mentioned in the Glossary.

Non-Qualifying Loss
The amount below which losses do not qualify for indemnification and are to be kept by the insured for their own account.

Pre-Credit Risk, Pre-Shipment Risk, Work in Progress
The commercial risk of insolvency of a buyer before delivery or shipment of the goods or performance of a service, and/or the political risk of any interruption of the manufacturing of the goods or performance of a service

Risk Attaching Policy
A policy under which cover attaches, based on shipment dates, and where the shipment date (but not necessarily the loss) must occur within the policy period.

Seasonal Variations
Certain periods within the trading year where the insured’s sales are increased significantly.

Threshold
In the event of a qualifying loss, the Insured retains for their own account any sum up to the threshold level. Once the Threshold level is breached, the Insurer will pay the insured percentage of the loss.

Waiting Period
This means the period specified in the policy schedule, which is the minimum number of consecutive days that must elapse before a loss is payable under the policy. Terms and conditions as per the policy wording.

 

Disclosure of Material Facts – Every proposer or insured, when seeking new insurance or amending or renewing an existing policy, must disclose any information which might influence the insurer in deciding whether or not to accept the risk, what the terms of the policy should be or what premium to charge. 

If you fail to disclose all material facts, this may render the insurance voidable from inception (the start of the contract) and enable the insurer to repudiate liability (entitle the insurer not to pay your claims).  If you are not sure whether a fact is material, you should disclose it.

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