Credit Insurance is a term used to describe both Trade Credit Insurance and Credit Life Insurance.
Credit Life Insurance is a consumer purchase, often sold with a big ticket purchase such as an automobile. The insurance will pay off the loan balance in the event of the death or the disability of the borrower. Although purchased by the consumer/borrower, the benefit payment goes to the company financing the purchase to satisfy a debt.
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. 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 private 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.
Credit insurance insures the payment risk of companies, not of private 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.
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.
Over the '90s, 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.:
- Atradius. A merger between NCM and Gerling Kreditversicherung. Later renamed Atradius after it was demerged from the Gerling insurance group.
- Coface. Formerly a French government sponsored institution established in 1946, this company is now part of the Natixis group.
- Euler Hermes, merger of the two credit insurance companies of the Allianz Group.
Notable credit insurance providers include
- Atradius
- Coface (France)
- Euler Hermes (Germany)
Brokerage Service Providers
Credit Insurance is said to be a broker driven business. 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.
