- Credit insurance
Credit insurance is a term used to describe both business credit insurance (a.k.a. trade credit insurance) and consumer credit insurance, e.g., credit life insurance, credit disability insurance (a.k.a. credit accident and health insurance), and credit unemployment insurance,
The easy way to differentiate between these two types of insurance is:
- Business credit insurance is credit insurance that businesses purchase to insure payment of credit extended by the business (their accounts receivable).
- Consumer credit insurance is credit insurance that consumers purchase to insure payment of credit extended to the consumer (insurance pays lender or finance company).
Consumer credit insurance is a way for consumers to insure repayment of loans even if the borrower dies, becomes disabled, or loses a job. Consumer credit insurance can be purchased to insure all kinds of consumer loans including auto loans, credit card debt, loans from finance companies, and home mortgage borrowing. Although purchased by the consumer/borrower, the benefit payment goes to the company financing the purchase for extending the credit to the consumer.
Credit insurance or trade credit insurance (also known as business credit insurance) is an insurance policy and risk management product that covers the payment risk resulting from the delivery of goods or services. Trade credit insurance usually covers a portfolio of buyers and pays an agreed percentage of an invoice or receivable that remains unpaid as a result of protracted default, insolvency or bankruptcy. Trade credit insurance is purchased by business entities to insure their accounts receivable from loss due to the insolvency of the debtors. This product is not available to individuals.
The costs (called a "premium") for this are usually charged monthly, and are calculated as a percentage of sales of that month or as a percentage of all outstanding receivables.
Trade credit insurance insures the payment risk of companies, not of individuals. Policy holders require a credit limit on each of their buyers for the sales to that buyer to be insured. The premium rate is usually low and reflects the average credit risk of the insured portfolio of buyers.
In addition, credit insurance can also cover single transactions or trade with only one buyer.
Credit Insurance was born at the end of nineteenth century, but it was mostly developed in Western Europe between the first and Second World Wars. Several companies were founded in every country, some of them also managed the political risk to export on behalf of their State.
During the 1990s, a concentration of the trade credit insurance market took place and three groups now account for over 85% of the global credit insurance market. These main players focused on Western Europe, but rapidly expanded towards Eastern Europe, Asia and the Americas.:
- Euler Hermes, A merger of the two credit insurance companies of the Allianz Group. Euler Hermes is the global leader in credit insurance and credit management.
- Coface. Formerly a French government sponsored institution established in 1946, this company is now part of the Natixis group.
- Atradius. A merger between NCM and Gerling Kreditversicherung. Later renamed Atradius after it was demerged from the Gerling insurance group.
Since then, other smaller-sized actors have emerged on the market :
- Ducroire SA, active in credit insurance, the emission of surety bonds and accepted reinsurance
- HCC International
- Axa Assurcredit, subsidiary of the AXA group
- Groupama Assurance-Crédit, specialized in the agro-food segment
Brokerage service providers
Credit insurance can be acquired through Brokers or directly through the insurer. Brokers mainly help in creating market competition between different insurers for better premium pricing and policy wordings for policy holders. Brokers also help policy holders to comply with the policy wordings in order to ensure smooth claiming process, if any.
In the UK over 90% of customers who use credit insurance work with a specialist broker. There are a number of specialist brokers.
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