I have been around credit departments since 1991 and received my credit insurance license in 1993. Since receiving my credit insurance license, I have sold credit insurance to small and large businesses. For over twenty years I have owned and operated a credit insurance agency with over twenty associates.
Credit insurance is an important credit tool many companies use for:
The question at the forefront now is, “How is the credit market and, specifically the U.S. credit insurance market been performing during the coronavirus global pandemic?”
It is a fact this event was totally unforeseen and unexpected and has affected the entire global economy.
Keep in mind that in the U.S., our economy was burning on all eight cylinders and credit was wide open.
When the U.S. shut down its economy in many sectors, we hit the proverbial wall, so to speak, some with - but most without - credit insurance protection.
Credit departments and financial executives are now reviewing credit lines by reviewing the most up-to-date financials and interims, where available. However, what is the real value of that? What mattered most is now in the rearview mirror. Now one has to look beyond the financials and get real-time data on the company. Is the company open? At what percent are they operating? Who are they selling to? If they’re selling to restaurants…good luck with that. If they are tied to hospitality, aviation, oil and gas, it’s been rough, to put it mildly.
There has been a bit of favorable news early on in the pandemic crisis. Specifically, three of the largest credit insurance carriers (Euler, Coface, and Atradius) all learned from the great recession and came to the table quickly to support policyholders by allowing relaxed reporting requirements, as well as increasing time frames within which to file claims. This was done in an effort to allow policyholders more flexibility.
Many other insurance underwriters have provided blanket policyholder discretion to allow for payment plans to be negotiated up to $500K for a debtor while preserving the rights to file a claim.
You may be hearing some frustration or even anger about insurance coverage being reduced, canceled, or non-renewed. This is true, but it is also true that the policyholder is protected up to the notice of the reduction or cancellation of coverage. Further, most policies allow for new orders to be accepted or existing orders fulfilled within a specified period. With or without credit insurance, credit lines are being reduced or removed until the risk is reassessed.
To that end, they have done a good job communicating with policyholders to allow folks to work it out. The U.S. credit insurance industry is being helpful. It also recognizes that some of the flexibility is for their own benefit. Meaning, if they do not give policyholders reasonable flexibility and tools to try to reopen our economy, they will be inundated with claims.
Now is a difficult time and we all need to work together. Up-to-date information on the health of the debtor(s) is critical to maintaining or getting coverage reinstated.
After the shock of coverage being reduced or removed, brokers, policyholders, and underwriters have been rolling up their sleeves to get an understanding of the actual accounts receivable outstanding and where active purchase orders are coming from.
As a broker, what we have found in half of the instances where coverage has been reduced or canceled, there was no existing receivables exposure. The rest of the time the lines were not being fully utilized. In other words, there was a fair amount of unutilized credit lines.
In the credit insurance market, as it stands today, we are finding we still have to get financial information and a narrative as to how the company is actively operating in real-time. Upon providing that information to the underwriters, they’ve been very willing to work to provide credit insurance coverage quickly.
For additional information, fee free to call (800) 320-7338 to speak with a local credit insurance expert.
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