Here’s a breakdown of the primary factors that determine the scope of coverage in a credit insurance policy:
- Policy Type:
- Whole Portfolio vs. Selective Coverage: Whole portfolio offers broader protection, while selective coverage allows you to target specific buyers or transactions.
- Domestic vs. International International policies include coverage for political risks and other factors unique to cross-border trade.
- Single-Buyer Coverage: Coverage is tailored for one high-risk customer.
- Risk Assessment:
- Your Business: The insurer evaluates your industry sector, credit management practices, and overall financial health.
- Your Customers: Their creditworthiness, financial history, industry, and the country where they operate are analyzed.
- Sales Transactions: The value of the transactions, length of payment terms, and the nature of the goods or services.
- Coverage Limits and Exclusions:
- Maximum Coverage: Policies have an overall maximum coverage limit and often limits per individual buyer.
- Deductible: The amount you must pay out-of-pocket before the insurance kicks in.
- Exclusions: Specific scenarios or events not covered by the policy (e.g., pre-existing customer disputes, certain industries).
- Insurer’s Approach:
- Underwriting Guidelines: Each insurer has its own risk tolerance and criteria for determining coverage.
- Market Conditions: Economic trends and the overall risk landscape in specific sectors or countries can influence coverage decisions.
- Cost Considerations:
- Policy Premiums Premiums are directly affected by the level of risk assumed by the insurer. More comprehensive coverage and higher risk exposure typically translate into higher premiums.
Important Notes:
- Negotiation: Some aspects of coverage scope can be negotiated with the insurer, particularly around buyer limits and exclusions.
- Thorough Review: It’s essential to meticulously review any offered policy terms and understand exactly what’s covered and what’s not before you sign.