How to qualify for credit insurance during economic downturn
Many companies that did not have credit insurance pre-Covid-19 are now rushing to find a reliable agent willing to take on their risk portfolio. This prove no easy feat, however, as credit insurers have been adopting a more stringent approach to their assessments.
Before Covid-19, the world had already been witnessing signs of an economic downturn and a rise in insolvencies for years. Recognising the need for a more stringent assessment process, credit insurers had been working hard to modify their approach. The Covid-19 outbreak accelerated their efforts, resulting in the following significant changes:
- Targeted risk actions: insured companies are asked to provide information on their buyers (outstanding balance, orders in production, payment behaviour, impact of Covid-19). This method has been known to reduce exposure to impacted buyers by 30%.
- Setting up new contracts requires more detailed information from companies: a recent, detailed loss history, a recent aging balance with information on client portfolios and information on credit management approach are key to acceptance with credit insurers.
- Following a downward trend in credit insurance pricing which lasted nearly a decade, premium rates are now set to increase. Given the fact that pricing was at an all-time low and considering the significant increase in risk since Covid-19, a 5 to 20% rise can be perceived as relatively normal.
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While credit insurers are becoming more expensive and selective in terms of the conditions they offer, they are still open to new clients and contracts. Companies with a professional approach to credit management are almost always eligible for credit insurance at a competitive rate, provided they have suffered limited losses.