Highly developed in France, credit insurance has acquired a status which gives it a predominant position in commercial relations between professionals.
It offers multiple advantages, the full utilization of which requires precise management of customer receivables. This is also an advantage because it forces the insured to improve their management and processes. Moreover, it applies to both domestic and export sales, where the risks are multiple and difficult to identify for a seller without access to the information and analysis sources available to insurers.
Depending on the type of insurance policy chosen, the seller delegates all or part of the customer risk management to the insurer. In the context of an export contract, the seller also delegates the analysis of country risk, known as political risk.
Credit insurance is a specific feature of French and European business culture. It is rarely used in other regions of the world, or in an "excess of loss" format.
There are several types of credit insurance:
Make sure you understand and negotiate the main terms of your contract. They involve obligations in managing your debts in order not to lose the benefit of guarantees obtained from the insurer.
Through the guarantee, the insurer gives you information on the creditworthiness of your customer. Credit insurers are often very well informed. Be sure to choose the one with the best network of information and analysis. This prevents the maximum unpaid invoices.
In case of unpaid invoices with this company the insurance company will reimburse you according to your contract. This solution is interesting but quite expensive as you get warranties on your creditworthy customers and not on your insolvent customers which you still have to manage yourself.
Choosing a credit insurance broker is certainly a profitable strategy, especially since this sector is quite volatile depending on the economic climate. It's best to work with a specialist who is well-versed in market developments and conditions to ensure you benefit from them. The contractual and pricing conditions obtained are also more favorable with a broker than without one.
It offers multiple advantages, the full utilization of which requires precise management of customer receivables. This is also an advantage because it forces the insured to improve their management and processes. Moreover, it applies to both domestic and export sales, where the risks are multiple and difficult to identify for a seller without access to the information and analysis sources available to insurers.
Depending on the type of insurance policy chosen, the seller delegates all or part of the customer risk management to the insurer. In the context of an export contract, the seller also delegates the analysis of country risk, known as political risk.
Credit insurance is a specific feature of French and European business culture. It is rarely used in other regions of the world, or in an "excess of loss" format.There are several types of credit insurance:
The classical credit insurance.
Highly developed in Europe, the classical credit insurance offers the following services:- Prevention: analysis of the creditworthiness of your customers,
- Monitoring: ongoing evaluation of your customer portfolio,
- Collection in case of late payments or unpaid through the use of litigation and court procedures,
- Compensation: payment by the credit insurer of an indemnity to the insured (usually between 85% and 95% of the net amount of your outstanding debt) if unpaid covered by a warranty.
- for each of your customers you request to your insurer a guarantee based on estimated credit limit need. The insurer can then accept or refuse to grant it to you according to the evaluation of your client's solvency.
- The insurer can agree to give you the warranty on a part or on the full outstanding amount requested. In case of unpaid invoices, the insurer reimburses you in proportion to the net amount of your receivable determined when setting up your contract. The payment of such compensation occurs within 30 days in case of insolvency proceedings of your client or within a few months for unpaid from customers which are not in bankruptcy proceedings.
- For small outstanding amounts, you automatically get a minimum amount guaranteed if your client is not on the list of firms excluded by your insurer.
- The insurer is remunerated by a percentage of your turnover (this is the insurance premium). A minimum premium amount is fixed by year (contract clause).
- If at the end of the year the contract is beneficial to the insurer with a loss ratio to its advantage, you can recover a part of that amount through the "beneficial interest".
Make sure you understand and negotiate the main terms of your contract. They involve obligations in managing your debts in order not to lose the benefit of guarantees obtained from the insurer. Through the guarantee, the insurer gives you information on the creditworthiness of your customer. Credit insurers are often very well informed. Be sure to choose the one with the best network of information and analysis. This prevents the maximum unpaid invoices.Excess of loss credit insurance
This type of insurance is completely different from the classical credit insurance. It is usually offered to companies of substantial size (+ 50 million euros of turnover) and performing a strict management of their receivables. The insurer guarantees that the losses over a given period will not exceed the threshold specified in the contract which is the maximum amount of unpaid debts that the company can support:- this insurance does not cover the outstanding invoices with each of your customers but your whole accounts receivables,
- your accounts receivables are insured as a building can be insured against fire risk,
- there is a compensation only if the level of bad debts reached a critical threshold defined by contract.
This type of insurance refers to businesses that want protect themselves against the risk of being impacted by an exceptional level of bad debts.
It implies a high degree of autonomy in managing customer risk because the insurer does not offer the services of a traditional credit insurance including analysis of credit worthiness of your customers.
The guaranted financial report
This solution is offered by companies specialized in credit information and credit insurance. On your request, they will provide you with a detailed financial report about your client with a guarantee defined according to the creditworthiness evaluation of your client.In case of unpaid invoices with this company the insurance company will reimburse you according to your contract.
This solution is interesting but quite expensive as you get warranties on your creditworthy customers and not on your insolvent customers which you still have to manage yourself.Credit insurance brokers
The role of the credit insurance broker is to act as an intermediary between the insured company and the insurers in several aspects:- Commercial and contractual: he assists the company insured with credit or wishing to insure itself to select the best offer from different insurers, both financial, contractual, and coverage rates for outstanding customer receivable. Having a detailed knowledge of market practices and conditions, the broker helps obtain favorable contractual conditions by challenging insurers. Although he is remunerated by the insurer around 15% of the premium amount paid by the insured, it is remarkable to note that this does not generate additional costs for the insured, quite the contrary.
- Operational: the broker provides several services to the insured:
- Requests for insistence from the credit insurer when the guarantee it provides is not sufficient. It thus has greater weight than the insured and benefits from more information to persuade the insurer's arbitrators.
- Management of the credit insurance policy, throughout the relationship, on several aspects: changes to contractual clauses, claims experience, management of profit sharing, advice on the management of the policy and the different types of guarantees: permanent, temporary, top-up, discretionary or unnamed limits, etc.
Choosing a credit insurance broker is certainly a profitable strategy, especially since this sector is quite volatile depending on the economic climate. It's best to work with a specialist who is well-versed in market developments and conditions to ensure you benefit from them. The contractual and pricing conditions obtained are also more favorable with a broker than without one.| The main credit insurers | ||
|---|---|---|
| AIG: largest insurer in the world, AIG offers many differents products (insurance, collection, credit management information) adapted to each type of company. | ||
| Allianz Trade: from SFAC acquired by AGF Allianz, then bi Allianz Trade group, this insurer is No. 1 in many European countries and USA. The whole group accounts to 37% of the global market of the credit insurance. Euler Hermes offers credit insurance products as well as debt collection, factoring and risk assessment. | ||
| Coface: private credit insurer but performing missions for of the French government, Coface SCRL has ORT (No. 1 intelligence in France) and Unistrat (credit insurer on political risks). Coface is part of Natexis Banques Populaires. Initially specializing in the export market, it operates since 2000 in the domestic market. It holds 17% of the global credit insurance and also provides intelligence on companies, collection and factoring. | ||
| Atradius: Created after the acquisition of Gerling NCM by Swiss Re and Deutsche Bank, Atradius is present in many countries with a global market share of 27%. Atradius is present in 42 countries where it offers credit insurance and collection products. | ||