During 2020 and throughout the COVID-19 and the economic uncertainty many companies utilizing trade credit insurance were surprised, confused, angered, disappointed, intrigued, glad, and better informed after their trade credit partners cancelled partial or all of the limits associated with a customer. Trade credit insurance has nuances that many other lines of insurance do not have, one in particular is the focus point of this article. What happens when my insurance company cancels coverage and why?
Anytime coverage under a trade credit policy is cancelled there is always initial confusion and the best position to be in, is one of being well informed. Working with your trade credit broker to understand the policy parameters, coverage options, reason for cancellation and plan to move forward is critical to your success.
Policy Parameters –
- Policies “should” and most times come with a delayed cancellation period. Allowing time to have discussions with current debtor, restructuring payment terms and opportunity to provide additional information. Important to remember, outstanding AR is still covered
- Claim filing requirements – being prepared for a claim situation is key to having the policy activate. Each carrier and each policy has claim filing criteria important to understand your obligations if you choose to file a claim
- Cancellation vs a Discretionary coverage – trade credit policies are an information source and important to understand that under most policies after a limit is cancelled, so too is the option for discretionary coverage
Coverage Options – working with a broker provides access to alternative coverage options
- AR Put Options – account receivable PUT options are available for both privately held and publicly held entities or more marginal risks. Priced anywhere from .1% – 3.5% monthly, PUTs are an additional source of protection
- Excess Coverage – many carriers offer coverages “in” addition to the core coverage for an additional premium. These coverages are consider commercial tools that usually are priced on the market for additional coverage from 0 – 2x current limits.
The WHY – understanding the “why” to the cancellation, is the most important piece of the puzzle. Trade credit policies are a source of valued information. Working with your trade credit broker there are several key things your broker could and SHOULD be doing:
- Understand what information the insurance carrier has and how that decision is being made
- Provide opportunities to speak with underwriters or become better informed about status of debtor
- Create a marketing plan of how to source additional information from the debtor, if needed, by contacting and discussing the current credit decision
- Appealing decision and working with the current insurance company to advocate on your behalf for optimal level of coverage
When coverage is removed from a policy it is great information that isn’t great news. The carriers and the policies are an immense source of information to help widen the credit lenses of your company.
Robertson Ryan has a trade credit division with experts to help you manage, educate and understand your policy and navigate any situation. If you’re unhappy, confused or feel you could use experts on trade credit policy we are happy to assist with any questions.