Credit insurance
Encyclopedia
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:
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.
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.:
provider.
Since then, other smaller-sized actors have emerged on the market :
In the UK over 90% of customers who use credit insurance work with a specialist broker. There are a number of specialist brokers.
Trade Credit Insurance
Trade credit insurance, business credit insurance, export credit insurance, or credit insurance is an insurance policy and a risk management product offered by private insurance companies and governmental export credit agencies to business entities wishing to protect their balance sheet asset,...
) 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 receivableAccounts receivableAccounts receivable also known as Debtors, is money owed to a business by its clients and shown on its Balance Sheet as an asset...
). - 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.
History
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 HermesEuler HermesEuler Hermes is a French credit insurance company majority-owned by Allianz France which is in turn owned by Germany's Allianz SE.It claims to have 36% of the total credit insurance market. Euler Hermes is the result of the acquisition of Allianz's Hermes by AGF's Euler in 2002...
, 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.
provider.
- AtradiusAtradiusWith an estimated 31% global market share, Atradius is one of the world’s largest trade credit insurers. The company, rated A- by Standard and Poor turned over €1.5 billion in 2010....
. 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 SABelgian Export Credit AgencyONDD, short for Office national du ducroire | Nationale Delcrederedienst, is the Belgian export credit agency. It was set up as a permanent autonomous public body in 1939 by the Belgian government after it had been part of the Ministry of Economic Affairs as the Delcredere Committee since the early...
, 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.See also
- InsuranceInsuranceIn law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the...
- List of insurance topics
- Export Credit AgenciesExport Credit AgenciesAn export credit agency or Investment Insurance Agency, is a private or quasi-governmental institution that act as an intermediary between national governments and exporters to issue export financing...
- Political risk insurancePolitical risk insurancePolitical risk insurance is a type of insurance that can be taken out by businesses, of any size, against political risk—the risk that revolution or other political conditions will result in a loss....
In the UK over 90% of customers who use credit insurance work with a specialist broker. There are a number of specialist brokers.