A credit insurance policy is designed to meet the needs of the policyholder’s business and is actively managed throughout the lifetime of the policy.
As part of the policy, the credit insurer will monitor each of a business’ insured customers, assigning them each a credit limit, which is the amount the insurer will protect them if that insured customer fails to pay.
Monitoring of a business’ customers can be done using a variety of sources, for example:
- Analysis of financial statements
- Information supplied by other policyholders that sell to the same customer
- Public records
- Visits to the customer
Buying a credit insurance policy gives the policyholder access to an extensive information network which acts as an effective early warning mechanism for adverse customer trends. The relationship between the insurer and the business/policyholder does not remain static as the credit provider will be there to support a company when trading.
Throughout the lifetime of the policy, the credit insurer will inform the business of any changes that might impact the financial health of their customers and their ability to pay them for goods or services delivered. They will then establish a plan with their customer to mitigate the risk.
The terms of cover may change over the lifetime of the policy to reflect the financial strength of any customer and it is the responsibility of the insurer to proactively monitor its policyholder’s customers, to ensure their continued creditworthiness.
During the policy period, a business may request additional coverage for trade with any of its customers. The credit insurer will then evaluate the risk of increasing cover and either approve or decline the additional credit limit request, with a clear and timely explanation. A business can also request a credit limit for a new customer under an existing policy.