Trade Credit Insurance: Policy Types
Generally speaking there are three types of trade credit insurance policies on the market today: Domestic, Export, & Global or Multi-National.
Domestic policies cover customer insolvency (Chapter 7 & 13) and protracted default (slow or non-payment losses). They typically cover entire customer portfolios but sometimes include only the largest customer exposures that are named in the policy. Discretionary credit limits are often built into the policy providing the underwriting pen to the policyholder allowing the client to set discretionary credit limits based on their normal due-diligence guidelines. Some qualifiers for DCL coverage include obtaining mercantile reports, bank & trade references, and obtaining financial statements on their credit customers. Sometimes qualifying for DCL coverage is granted simply using previous trade experience.
Export policies cover both insolvency and protracted default and also cover political risk as well. Political risk can involve public events such as natural disasters, political upheaval, acts of war, government intervention, embargo, or currency inconvertibility. With an export policy, letters of credit can be eliminated completely saving expense and time associated with these laborious documents.
Global or Multinational policies cover all the all the same events found in both Domestic & Export policies but are specifically designed for corporations that have a global presence and maintain subsidiaries around the world. The terms and conditions of the policy can be standardized for each location or customized based on specific use. Global or Multinational policies can be written in multiple languages and support different currency options.
Have a question or comment about trade credit insurance? Feel free to post your inquiry on this blog or contact Jack Trama directly by clicking here.