Glossary: Frequently Asked Questions

1. Your policy is so complex that you always find a reason to reject the claims.
From our group annual reports you will find that we do pay out claims. The rules you need to follow, in order to be protected, are well described and realistic and the policy wordings are fairly straightforward.

In addition to the above you will be presented with a handbook that gives operational procedures to follow. We would be happy to give a one-on-one training to people in charge. However, we would pre-suppose that a policyholder had credit management in place; is able to track overdues, measure exposures on each buyer, and would apply the rules for discretionary limits.

It is not our wish to reject a claim. This always leads to frustration by the policyholder and could be the cause of us losing the policy.



2. We never had a debt that impacted our business.
Prevention is better than cure. If your debt had never impacted your business, it does not cost much to protect yourself against catastrophic losses. Should it have impacted, and if you were to buy credit insurance then the premium will be much higher.

Even though you may have a clean loss history it is no guarantee that losses could not be made in the future. Of course a clean loss history will be reflected in the advantageous premium rate we would offer.

No one can be entirely sure about their own market, when it moves fast it become less predictable. Credit insurance is a way to streamline your P&L. You pay a reasonable premium each year and you avoid that 'big hit'.



3. Our portfolio is well-balanced and we currently foresee no risk.
If there is an impending risk, it will be too late to buy credit insurance. Even with a well-balanced portfolio you cannot predict an unexpected claim or catastrophic loss. Unfortunately unforeseen catastrophes do exist eg. fraud of a manager that causes a company to go insolvent, or secondary insolvency, which means the insolvency of a major buyer of your client that affects your client's business. You can never be absolutely sure that you have all the information.

When your portfolio is well-balanced this is exactly the best time to have your receivables insured as this will produce an attractive premium.



4. We understand our industry well and can predict the upturns and downturns.
When one of your clients goes insolvent, it will not be classified as either an industry upturn or downturn. We might be able to predict insolvency by the continual assessment of the creditworthiness of the buyer. This investment will take a lot of your time. We, as credit insurers, employ specialised staff who are dedicated to look at risks such as this.

Political risk is not within our predictions and even with the cyclical knowledge of your industry, it may not be of help.



5. We understand our buyers well and we are a highly networked industry.
Being highly networked or understanding your buyers is not 'security' to ensure payment from them. Even your best friends sometimes default in payment. Insolvency happens very quickly, and even being well informed will prove too late to withdraw your investments on the buyer.

You should ask yourself "how much time and energy do I have to spare on gathering all the necessary information"? One thing to bear in mind is that personal relationships with clients can be dangerous. They can prevent you from either recognising or assessing the problems in a dispassionate way. A neutral assessment can be an added value.

There is a difference between reputation and hard, cold facts. Facts change faster. At times there maybe facts that you are unaware of. The reason that you are well connected may be the motivation as to why your client will try to pay regularly, for as long as possible, while he is already defaulting on his foreign suppliers. We have records of payment from all over the world, and sometimes we have information that you cannot gather on your home market.



6. We have enough reserves to overcome losses. With the premium we are paying, we can use that as reserves for our bad debt losses.
The reserves put aside are estimated to cover your losses. If an unexpected huge debt occurs, your reserves will not be able to protect you. With credit insurance, we can tailor a policy with some deductibles and you can use your reserves to cover these deductibles (first losses). Any huge debt will be paid by us if it exceeds this amount.

Reserves for losses yet to come are not tax deductible and make your balance sheet look worse. It may also have an impact on your own creditworthiness in the eyes of your bank or other credit insurers. One thing to bear in mind is that reserves may be enough to cover your small structural loss but they will never enable you to cover against a major default.



7. Your premium is too high compared to other insurance providers.
Usually our rates are competitive because we have been in the business for over 90 years. If our rates fall short of our competitors, we should compare the indemnity, country coverage, deductibles and most important of all credit limits. The premium rate is just an indication of the price, but ultimately you are more interested in credit limits and risk assessment. At the end of the day, it is the quality and value-added services you get from your insurer, such as buyer visits. We should take a closer look at coverage and risk assessment before comparing prices.

Ensure that when you are making comparisons you take like for like. We are very sharp when we price in our core business. However, if we can understand your business and needs better it is probable that we can structure our offer in a way that means you have a better balance between the cover and the premium rate.

Service is key in our industry and that is intangible.



8. It is troublesome and tedious for us to report overdues and submit turnover declarations. It will create more paperwork.
Good credit management requires some administration. It is not easy to ensure you get your debts back, this takes some effort. If you do not report to us your overdues, I am sure you will do so within your own department meetings. Your accounting system will be able to churn out the overdues and it just takes some effort to inform us in writing.

We have simplified the turnover declaration to report it either once, twice or quarterly per annum. Declaring your sales turnover is also something you need to assess at the end of the year so it is not considered extra work. Furthermore, having the figure will help you realise your sales situation.

What we ask is the kind of reporting your company should be able to provide to your management anyway. The existence of the credit insurance policy will increase the pressure on the credit management department to react faster to a possible default. Credit insurance gives a certain latitude for reporting that is proportional to the strictness of your internal credit management rules. It is something that can be reviewed.



9. If you are only insuring the good buyers, we do not need credit insurance.
We do take risks. Each year we pay a substantial amount of the premium back in claims. This means that we grant credit limits on buyers who are not necessarily AAA rated. Obviously we do not have the urge to take credit limits on buyers who are very likely to become insolvent or who have a record of non-payment. As a claim will affect your result, we expect that you would not be happy either. If you feel that we refuse cover on a "good" buyer, you have the right to grant him open credit, at your own risk. You will not pay any premium on this part of the turnover.

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