Credit Insurance
Protect your business from credit risks and customer defaults with comprehensive trade credit and receivables protection.
Credit Insurance
Credit insurance is a broad term for policies designed to protect against financial loss resulting from a failure to repay a debt.
Major Areas of Operation
It operates in two major distinct areas:
Trade Credit Insurance
This is a business risk management tool that protects sellers/suppliers (the insured) from losses due to the non-payment of goods or services by their buyers (their customers).
What It Covers:
Commercial Risks: Losses resulting from a buyer's insolvency (bankruptcy) or a protracted default (failure to pay invoices after an agreed-upon, extended period).
Political Risks (for Export Credit Insurance): Losses due to events in a foreign buyer's country, such as currency transfer restrictions, war, revolution, or government-imposed trade embargoes.
How It Works:
The seller buys a policy that covers their accounts receivable (invoices).
The insurer assesses the creditworthiness of the seller's customers and assigns a maximum credit limit for each buyer.
If a customer defaults or goes bankrupt, the insurer pays the seller a significant percentage of the unpaid, insured debt (typically 80% to 95%).
Key Benefits for Businesses:
Cash Flow Protection: Safeguards the balance sheet from unexpected bad debt losses.
Sales Growth: Gives the seller the confidence to extend more liberal credit terms to new or existing customers, facilitating business expansion.
Risk Management: Insurers provide valuable, real-time credit analysis and monitoring of the buyers, assisting the seller's credit control function.
Consumer Credit Insurance
This type of insurance is sold in conjunction with a specific consumer loan or debt (e.g., mortgages, car loans, credit cards) and protects the lender by ensuring the debt is repaid if the borrower faces a covered event.
How It Works:
The borrower typically pays the premium, often added to the loan amount or charged monthly.
If a covered event occurs, the insurance company makes the payment directly to the lender, protecting the borrower's credit score and relieving their family of the debt burden.