The credit insurance market was a very traditional environment for a long time, but in recent years it has undergone some fundamental changes. The arrival of some new insurers that agree to cover just one risk has put the credit insurance market under pressure. This has resulted in more and more 'tailor-made products' offering new options to companies.
Vanbreda Credinco is the second-largest specialist credit insurance broker in Belgium. This subsidiary of Vanbreda Risk & Benefits has many major clients and achieves more than 25 million euros in premium collections annually. It is therefore in the perfect position to notice new trends and evolutions. Vanbreda Credinco CEO Jean Guinée summarises the main innovations for you.
For a very long time, credit insurers only covered a complete portfolio of debtors, but that has changed in recent years. Jean Guinée: “Traditional insurers base their services on the entire turnover. Such an insurance solution includes all the firm’s debtors. It results in a mix of ‘good risks’ and ‘less good risks’, which offers the insurer a certain level of comfort. However, there is an increasing market demand to insure only a few debtors or even just a single debtor. These are usually clients or suppliers with an exceptionally high individual outstanding balance that would cause considerable financial damage in case of non-payment. Market demand has encouraged some insurers to offer Single Risk solutions that offer protection against a limited number of debtors. This shift in the credit insurance market has sparked an evolution towards more tailor-made credit insurance solutions.”
Co-insurance – the distribution of risks between two insurers – is very well established in many areas of insurance now, but it is still a new concept on the credit insurance market. Jean Guinée: “In some cases, very high limits of 50 to 100 million euros apply, sometimes even more. This may be impossible for a single insurer for capacity reasons. That is why in some cases credit insurers develop co-insurance solutions in which two insurers share the risks based on a ratio of 70/30, 60/40 or 50/50.”
In traditional credit insurance, the insurer retains the option to lower or even withdraw the credit limit. When this is done for a major and important debtor however, this may lead to financially dangerous situations. Jean Guinée: “As more and more companies wanted more security, some insurers have introduced so-called ‘non-cancellable limits’. This cover ensures that limits cannot be withdrawn for a maximum period of one year. It is an important innovation on our market, again in response to strong business demands.”
Insurers sometimes only partially approve a credit limit request, even though many companies want to see their entire credit limit covered. That is why in recent years the so-called ‘top-up policy’ sprang to life. Jean Guinée: “When the primary insurer offers a limit that is insufficient for a debtor, a third party can provide additional cover. This cover can be set up temporarily or permanently and in most cases adopts the conditions and terms of the primary credit insurance policy.”
Despite its negative connotations in the past, factoring has become an increasingly popular option in the past few years. Factoring allows businesses to transfer the management of the debtor portfolio to a factoring company. Jean Guinée: “More and more companies are moving towards debtor finance by selling its accounts receivable to a factor. In most cases, the factor will immediately pay 80 to 90% of the invoiced amount. A full-factoring contract offers financing, debtor follow-up and credit insurance. In some cases, the factor is used only for financing and/or debtor follow-up and a credit insurance policy is taken out with a credit insurer.”
More and more clients or government institutions currently demand a guarantee to ensure that the contractual and statutory obligations are met. A so-called ‘bonding’ solution allows companies to provide the necessary guarantees without having to use their own liquid assets. Jean Guinée: “They use bonding to outsource their surety to a bank or insurer. The bank or insurer will then guarantee that all financial obligations are met and will compensate any damage if the obligations are not met. What is new about this is that more and more banks are rejecting companies’ guarantees and that insurers are often taking their place.”
Cyber risks are currently the most likely risks in companies. The international business world was shaken by a number of worldwide cyber attacks last year. Jean Guinée: “Credit insurers are very much aware of this new and ubiquitous business risk, so some of them currently offer cyber cover as an extension of their credit insurance policy. Identity fraud is a common example of this.”
If you would like more information on credit insurance or one of the above options, call us on +32 3 666 88 65 or send an e-mail to firstname.lastname@example.org.