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Chapter 8 - Buyer risk underwriting in trade credit insurance

Published online by Cambridge University Press:  18 January 2018

The International Credit Insurance & Surety Association
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Summary

One of the important aspects of trade credit insurance is the credit assessment that is duly made in respect of all buyers in an insured's portfolio.

This credit assessment is used to determine the level of coverage for each of the insured's buyers in case of loss. Furthermore, it is a tool that helps to avoid potential defaults, bearing in mind that the insurer controls the financial and economic situation of each buyer throughout the validity of the policy, duly assessing any new information becoming available and effectively acting as a true credit control department.

The following is a detailed description of the working methods normally used by insureds in order to manage their risk by means of a credit insurance policy. It also describes the main tasks implemented by risk underwriting teams from an insurer's perspective.

THE INSURED'S PERSPECTIVE

Whenever an insured has signed a credit insurance policy, in keeping with the provisions of the policy, he shall provide the insurer with a full list of buyers to whom he sells on credit. The list initially submitted should include the following information:

  • • details of each buyer (company name, VAT number or registered company number, address and country);

  • • amount of the credit limit required for each buyer;

  • • means of payment to be used by each buyer and any securities such as guarantees that may already be in place;

  • • the insured may include any further information or observations they consider convenient for the insurer's risk anlaysis team.

    • On the basis of the information provided, the insurer then establishes credit limits for each buyer and may grant full, partial or no coverage whatsoever in respect of the requested credit limits. In the case of a qualified decision (i.e. involving limitations or exclusions), an insurer will usually indicate the grounds for such decision being made.

    At this point, the full portfolio of buyers will have been duly rated and for as long as the policy is in force, insured may request credit limits for new buyers or apply for modifications of previously established (or formerly excluded) credit limits.

    Type
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    Information
    A Guide to Trade Credit Insurance , pp. 51 - 74
    Publisher: Anthem Press
    Print publication year: 2015

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