Until the 1990s, there was little competition in the credit insurance market. And then a change took place, in the 1990s several players entered the market. Change! Before, you had to insure your entire turnover, there were no other options. However, you could choose whether to insure only domestic or foreign turnover. And you could exclude some buyers. Those days are over! Now it is also possible to insure one or a few buyers. It is even possible to insure a single transaction.
Selective insurance
Many companies like to insure their entire accounts receivable portfolio. Not just because of a high level of risk, but also to properly structure debtor management or because it is required by the financier. But if you only see limited risk, you can choose to selectively insure. The creditworthiness of the buyer is then looked at a bit more strictly. And because there is less risk diversification for the credit insurer, the premium will be a bit higher.
Specific transactions
At Xolv, we are particularly seeing an increase in demand for insuring specific transactions. Think, for example, of building a production line with a term of two years. Or building a power plant in Saudi Arabia with a three-year term. These kinds of projects involve risks:
- Buyer goes bankrupt during production, i.e. before delivery. Then you have already incurred costs that will no longer be paid. Think of materials purchased, labour performed, services purchased.
- Customer goes bankrupt after (part of) delivery (the payment risk).
- The buyer does not go bankrupt, but due to political circumstances in the country of delivery, deliveries and/or work cannot take place or payments cannot be made due to a foreign exchange shortage in that country.
Special products
There are credit insurers that have developed special products for this type of transaction. These have a number of features. For instance, the cover on the buyer is non-cancellable, i.e. the cover cannot be withdrawn during the term of the contract. Contracts can be insured up to three years, in exceptional cases up to five years. Coverage is available globally and depends on the quality of the buyer. And cover is for manufacturing and contract risk, payment risk and political risk.
The benefits
Long contracts increase both the credit risk and the political risk, so insurance provides financial security. These are often contracts with buyers and projects abroad, so the grip on risk is reduced. Insurance provides security for financiers who finance part or all of the project. The premium is fixed and paid at the start of the policy, so there are no surprises afterwards. And once the risk is accepted by the credit insurer, they cannot withdraw the cover.
Finding solutions
Xolv has already helped many companies find solutions for insuring debtor risks, as well as entire contracts. We are also happy to help companies that do not want to insure their entire turnover, but still experience risks or have other reasons to cover part of their risks. And you will find that we are far from stuffy!
