Credit insurance covers all the commercial trade receivables under ‘Comprehensive Policy’. When the insurer finds that the individual buyer is not creditworthy, it does select the risk.
Credit insurance policies are annually renewable. The premium rate is set at the inception of the policy. The insurer declares its turnover either monthly renewable.
Nature of credit insurance
The premium rate is set at the inception of the policy. The insurer declares its turnover monthly, quarterly, or annually depending upon the policy. The renewal policy is issued at a discount of 10 to 20 percent, in non-claim.
The insurer manages its trade credit relationship efficiently. There are specific account policies that cover only certain named accounts.
Single Account Policies cover a single named account. The catastrophe credit policies ensure risk from catastrophic trade credit default. It carries a larger premium.
Credit insurers have started selling credit information to the sellers who will be cautious in selling their creditworthy customers that are decided on the basis of capital character and capacity.
Capital refers to the financial strength which is evaluated on the basis of 3-5 years of financial statements including balance sheet income statement, statement of cash flow and statement of owner equity.
Cost records are used for contractors’ jobs. Character refers to a reputation for fairness and business-like dealing. Character refers to the ability to perform which is assessed by the buyer’s capacity of operation and marketability.
Proper policy design is essential for credit insurance management self retention coinsurance limits setting short-term cover etc. are adopted for risk management reinsurance and risk scrutinization is also done proper management of credit risks.
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