Is insurer smarter than the Customer? Original approach to receivables insurance 23.04.2015

In the classical approach to the credit insurance which specialized insurers offer, monitoring insolvency risk is under the control of the insurer. He gives the credit limits on key customers, decide on the amount and the possible changes in the course of the policy and the amicable recovery is performed in the case of non-payment. Sometimes he decides earlier about more radical steps like referring the case to court if it finds that amicable recovery will not be effective. Although not all consumers remain under the control of the insurer, since the automatic limit is controlled by the Customer (I wrote about it in the article “The question from the Customer: I have a policy – should I close a debt management department?”).

However, for customers whose counter parties structure is cumulated and is based on a small number of large customers, the insurer manages the risk of insolvency of a large part of the recipients. And what if a potential insurer’s customer has its own comprehensive credit management department? Department, which is based on a detailed assessment by employed professionals, giving them the internal ratings and credit limits based on financial analysis and external information, regular updates and the internal ratings of local recovery.

Of course, even functioning of such big structure does not guarantee complete security from the receivables. Especially in the case of large customers, just one more bankrupt company is enough to shake Customer’s liquidity. There is no doubt that such a policy is needed. Extensive internal receivables management structure requires no small financial outlay, and the question arises whether the Customer will have a budget for receivables insurance policy .

That is why there are insurance offers on the market which are based on customer procedures, which means that the insurer does not hold any financial investment to the risk assessment and recovery departments, and only accepts customer procedures that are “written” in terms of insurance receivables, so that the cost of insurance can be lower than the traditional approach. Sometimes the insurer accepts the Customer procedures after the modification suggested by the insurer. This solution is reserved for companies with solid credit insurance procedures.

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