Offering Credit Insurance

Gérard Philippon
Vice-président, Credit Insurance
The Guarantee Company of North America

The perfect opportunity in today’s prevailing soft market

In the current market it is more than likely that you have to offer your clients very favorable renewal conditions including lower premium. When you advise your client that his regular P&C insurance costs will be reduced the client may be more receptive to investing part of the savings in a new product, most particularly if these costs have already been budgeted.

Account receivable insurance or credit insurance can be a response. It is a product which when correctly underwritten will pay for itself through the payment of claims for bad debt losses but also because it could help policyholders safely increase their sales and therefore their profits.

Credit Insurance is a regulated insurance product and only a licensed broker may sell it. It is a well-proven product, offered in Europe for over 100 years. Mainly direct insurers and a handful of specialist brokers have sold it in North America for over 50 years. The market growth and the arrival of new players, including The Guarantee, are now contributing to an increase of the number of credit insurance policies sold through independent P&C brokers.

More and more independent brokers now systematically include credit insurance in their renewal proposals. They believe that it falls within their mandate to cover the risks of their clients’ accounts receivable the same way they insure buildings, equipment and inventory. Accounts receivable may constitute up to 40% of a company’s total assets. When a buyer does not pay for the goods or services he bought, the company will have to absorb a loss. Its assets and net worth will decrease. The amount and frequency of bad debt losses can be significant enough to damage the company’s liquidity and sometimes even threaten its existence. Therefore, it would be reasonable to transfer the risk of non-payment to a third party. This is the purpose of credit insurance and a good reason for the broker to offer it to its clients.

The main competitor of credit insurance is self-insurance, but very few companies make that choice deliberately knowing the costs attached to it. The benefits of credit insurance are not limited to the coverage of potential losses and the policyholder will quickly find that this product helps him safely increase his sales, improve the quality of his credit management and very often improve the conditions of his bank financing. Keeping all the above in mind, the cost of credit insurance is very affordable and most policies will pay for themselves over time.

Credit insurance is an easy to learn specialty product, which offers a significant growth potential. We believe that the current soft market and growing economic uncertainties constitute a window of opportunity that you may want to consider.