NOW YOU SEE IT, NOW YOU DON'T
For credit professionals, the way credit insurance works can all be a bit of a mystery, so is it worth it?
By Brian Pursey
CREDIT insurance is a very tricky area at the moment. It is of great concern to me.
All credit insurers have been taking a battering from the recession in the recent past, and some are strained in terms of capital, too, and they have added difficulties. Credit insurers use credit information or rating systems. Larger insurers have made decisions to withdraw or significantly reduce cover in certain sectors or to certain debtors and, as a result, you may find that cover is pulled. If you are tied in to a credit insurer and have cover for a debtor that they are not happy with, that cover could be pulled.
I know of a significant line that was pulled for lack of current information: the company has a top rating with credit agencies, has significant cash reserves and their audited accounts had actually been signed two weeks previously by KPMG, signifying the company was ‘good' for at least 12 months. Government help? The government's credit insurance scheme has helped very little. Designed to lessen the impact of a credit insurer reducing cover, where cover is pulled rather than just reduced, the scheme fails. This is a major problem. We deal with a lot of credit insurance and have not been able to use it even once. Today's credit insurer wants clients who keep their own house in order, for example by reducing debtor days outstanding and cutting the loss ratio, as we have worked to do over the past 18 months.
I would say tight credit control is crucial and be careful not to take on risk in the first place. Having insurance does not mean you can abdicate on your responsibility of running a tight ship. Our advice? Do your homework and ask a good broker. CCR-2
