Paul Humphreys Credit Insurance Services

This type of cover is based on all insurable sales; this will exclude any business transacted directly with local authorities, government departments, members of the public and cash and credit card sales.

The premiums are usually expressed as a percentage of the estimated insurable turnover with an adjustment being made at the end of the policy period based on a final declaration. There will normally be some element of minimum annual premium involved; the premiums are normally payable either monthly or quarterly in advance.

There is always an excess which excludes losses below an agreed figure, this is normally between £500 and £1,000 although it can be set higher if there are requirements for a lower premium rate or if the historic bad debt experience is particularly poor. The insured percentage on claims is normally between 80% and 90%. Claims are payable due to any type of insolvency; settlement can be made on debts that are agreed to be “uncollectible”.

Credit Limits

Credit limits are set by the insurance company on major customers; they are subject to a review from time to time based on the latest available information. In terms of policy administration the insurance company will recommend an approved credit limit on principal customers whilst allowing credit limits up to a certain level to be set by following an agreed set of procedures. For companies turning over up to £5,000,000 it is normally appropriate for the insurance company to look at individual credit limits in excess of £10,000 and for larger companies this figure can be increased based on a number of factors including the quality of the credit control procedures.

The premium rate is based on a combination of factors including trade sector, estimated turnover, and previous bad debt experience, the strength of principal customers, terms of payment offered, and general credit control procedures. The credit insurance market is going through a major upheaval; the last few months have seen a dramatic change in attitude to risk from some of the major credit insurance companies. We have moved very quickly from the softest market in years to the hardest.  At a time of unprecedented demand there is a distinct lack of capacity & appetite across large sections of the economy.  From some underwriters we have seen mass cancellations of credit limits and Amlin Credit have announced that they are pulling out of the market all together and are placing their credit insurance book into orderly run off.

Premium Costs

In terms of premium rate the cost will vary considerably based on the above factors, however broadly speaking rates vary between 0.2% and 0.9% of insurable turnover. Most of the larger Credit Insurance companies have a minimum annual premium of around £4,000. This really makes a policy uneconomic for any company with insurable sales of less than £400,000. A typical premium rate now for a £5,000,000 turnover business with a good bad debt record would be in the 0.50%-0.75% region; 12 months ago it would have been closer to 0.30%.

As an additional service to the above most companies will extend cover to incorporate legal and collections costs that are incurred in recovering insured debts. This can be extremely valuable, especially if there is a need to issue winding up proceedings against a defaulting company or if an overdue debt occurs with an overseas customer.

All Monies Reservation of Title

Some underwriters insist on this being incorporated in your terms and conditions of business, whilst it is not appropriate for all sectors, it is a valuable tool if you are faced with a major loss.