An interesting development over the last year or so has been the introduction (by some insurers) of the credit insurance premium to buy cover on customers where the credit limit is nil or restricted. Historically there had always been an insurer viewpoint that “no amount of premium would make a bad risk a good one” (and this is arguably true in the ‘black & white’ cases). However, insurers looked at the cover that was being refused by their underwriters, and realised that on a statistical basis, there was a level of premium that could be charged to cover these ‘risky’ companies (and the inevitable claims that would arise).
Initially this was received cynically by some policyholders; there was a worry that insurers would reduce their credit limits, and expect policyholders to pay for the top-up cover as a way to generate more premium. However, where both policyholder and insurer agree and understand the reasons for a restrictive credit limit, there is also the recognition that not all of the insurer’s nil decisions result in insolvencies and that there are often good commercial opportunities to do business with companies that aren’t in a strong financial position.
This pragmatic view has been borne out by our experience; many of our clients have taken advantage of the ability to buy extra cover on some difficult customers. Indeed, one client in a highly competitive, high-margin industry has the novel approach of taking the top-up premium from the salesperson’s commission – asking them to ‘put their money where their mouth is’!
There are a number of differences between the various insurer’s products and the way that they work in practice, but overall the trade credit insurance industry is now offering more flexible options to support the growth of their policyholder’s businesses. Suffice to say that, if in the past you have discounted credit insurance due to lack of credit limit cover on your customers, it will be worth getting in touch with us to discuss these recent developments.
Atlas Risk are experienced trade credit insurance brokers based in Manchester, helping our clients to grow safely.