How to buy Credit Risk Insurance
Credit risk insurance is rapidly becoming a preferred financial tool for companies facing a wide range of problems and opportunities. In this article, we'll explore how credit risk insurance can be of value in your business and outline the best approach to shopping for this unique and highly valuable coverage.
This article is broken down into 6 key sections, with the intent of helping you understand the process of determining your credit risk insurance needs and then how to buy it.
Determine Why You Want to Buy Credit Risk Insurance - summary of benefits of credit risk insurance
Locate the Right Credit Risk Specialist to Assist You - why this is important, what to look for
Designing a Credit Insurance Program to Fit Your Needs - budget considerations, risk retention, establishing coverage limits
The Application Process - what to expect, turn around time, selecting carriers to solicit
Evaluating Credit Insurance Offers - apples and oranges, how your specialist can help, key points to compare for credit risk insurance
Implementing and Managing the Program - getting started, ongoing management items, how your credit risk specialist can assist
The Application Process
Your credit insurance policy will be quoted based on the information you provide in your application, and that application will be bound into the policy as your underlying representations in the agreement between you and your insurer. Accordingly, it is important that you provide as complete an application form as possible. In most cases, the form is no more than 4 pages of basic questions about the business, along with tables for listing the coverage limits you want and reporting significant past due accounts.
For the typical domestic credit insurance application, carriers can provide full quotes with account underwriting decisions in about two weeks. This varies depending on the number of accounts and underwriting backlogs. Your broker should follow-up on your behalf to make sure that the quotes are returned in a reasonable timeframe. Applications for export coverages can take longer due to the longer lead times in underwriting overseas accounts.
In terms of selecting carriers to solicit for quotes, it is important to understand that there are only a small handful of carriers who specialize in this type of coverage, so in some cases you may only have one or two viable options to consider. As mentioned earlier, to avoid confusion and delays you should select one broker to work with, as they should be able to provide you with access to the few carriers who might be a fit for your needs. Do not hesitate to ask your broker about the carriers they recommend for you.
When the underwriting process is complete, you should receive the quotes as presented to your broker by the carriers. It is then time to evaluate the offers and determine who represents the best fit for your specific requirements.