Credit Insurance

What exactly is credit insurance?

In a nutshell, credit insurance is a type of commercial protection that protects a company’s receivables against buyer defaults or bad debt. It allows a company to stay on its feet even during difficult periods of economic instability.

You may also hear credit insurance called bad debt or export credit insurance.

Why is it important?

Credit insurance helps decrease the risk that a business takes on when dealing with especially large transactions that they may not have financial reserves to cover. Another concern could be if a client or clients are unable to pay (or are very delayed on payments) the company for an extended period of time. Credit insurance would protect a company whose trading partner becomes insolvent.

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Who benefits from credit insurance?

Certain export markets can benefit from credit insurance due to the uncertainty of the trade. Construction businesses that deal in large projects would also be ideal candidates for credit insurance. That said, almost any business that must take on large amounts of debt would benefit from this type of insurance policy.

What kind of coverage should I expect from credit insurance?

Credit insurance can be divided into commercial risk and political risk insurance coverage. With commercial risk coverage, you’re insured from debts that occur from insolvency, either from bankruptcy or asset liquidation, or protracted default where you are unable to full fill your contractual agreement (i.e. you fail to pay for goods and services).

Political risk coverage on the other hand allows a company to be insured in the case of non-payment due to government interference. Government interference could be anything from export and import restrictions to public buyer default and contract termination.

What is Domestic Credit Insurance?

Domestic Credit Insurance, also known as Whole Turnover Domestic Credit Insurance, covers a business from any losses incurred by non-payment from bankrupt or insolvent buyers or partners within that business’s local market. Fixed premiums are often made available by underwriters under certain conditions.

What is Export Credit Insurance?

Export Credit Insurance, also known as Whole Turnover Export Credit Insurance, works much like Domestic Credit insurance, only it’s for companies with an international footprint. Because it works on an international level, risk of political events is also covered.

Can both Domestic and Export Credit Insurance be combined?

Yes, and it will cover receivables both domestically and internationally.

What is Pre-Delivery Coverage?

Pre-Delivery Coverage is made specifically for a company that requires goods made to order. It offers the same form of protection against buyer insolvency that domestic and export credit insurance offers.

How does Global Credit Insurance work?

Global Credit Insurance is specifically for large multinationals that need coverage across a range of divisions and locations. This type of policy can assist a business with eliminating much of the risk involved in certain regions or industries, by merging coverage together with more secure regions.

What is Catastrophe Credit Insurance?

If a company has an annual turnover of over 60,000,000 AED, and is protected via certain credit controls, then Catastrophe Credit Insurance may be worth looking into. With Catastrophe Credit Insurance, an insurer will set an Annual Aggregate Deductible that, if claims exceed that amount, the insurer will pay out those claims immediately.

What is Key Account Credit Insurance?

As the name suggests, Key Account Credit will protect a business against the default or insolvency of the company’s largest business customers. Oftentimes these types of plans will carry an excess.

What is Specific Account Credit Insurance?

These policies are for one customer only, commonly the largest that a company has, and will cover their receivables in the case of insolvency.

 

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