At long last, credit insurance gets its due

Risk & Insurance, April 15, 2005 by John Williams

Decide whether you want to cover domestic and export business, or just the latter. Many companies, in fact, retain 100 percent of their domestic accounts receivables risk and only cover their export accounts.

"Export insurance is more popular than domestic," says Wagman. "In fact, 40 percent to 50 percent of our clients purchase insurance for export accounts only."

[For more information on the details of export credit insurance, turn to page 62.]

USE A BROKER

Don't shop around for an insurance carrier, Instead. shop around for a good broker, who will then help you select the best carrier. A good broker can guide you to the most appropriate carrier for your needs.

In talking with your broker, determine the type of carrier with which you want to do business, in terms of how active you want the carrier to be in your business.

"You may want one that is an active partner in your credit management program," says Ferraiolo. If so, select an underwriter that offers an "explicit policy" which actively underwrites accounts and provides specific credit limits.

However, if you just want "backstop protection" in the event of an excess of loss in any given year, then ask your broker to steer you toward an underwriter that offers an "implicit policy."

Here, you have more flexibility in granting credit to your accounts, but there is more conditionality attached to coverage.

"Here, the underwriter acts as backstop protection, rather than an active partner," Ferraiolo also adds.

JOHN WILLIAMS, an Indiana-based freelance writer and author, is a frequent contributor to Risk & Insurance[R], He can also be reached at riskletters@ lrp.com.

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While domestic credit insurance is still a small market in the United States, export credit insurance is even smaller, according to Evan Freely, senior vice president of Willis of New York, a brokerage firm. "The majority of coverage is still for domestic, but export is growing," he says.

"When we do see it, it is usually a request for single risk coverage." This involves covering one buyer or obligor. In the past, underwriters tended to push for portfolio coverage, Freely says. Now, he is seeing more flexibility with underwriters to write risk cover, as long as it is not an adverse selection.

Following Sept. 11, 2001, the export credit insurance market was somewhat hard, since so much capital went to the traditional property/casualty markets and away from the specialty lines, such as credit insurance.

"However, this is starting to come back in now as more reinsurance is coming into the market," he says. "It is also starting to be reflected in the pricing."

Banks continue to be strong drivers of the export credit insurance product. As a result underwriters are becoming more flexible in terms of tailoring their wording to cater to bank requirements.

Freely expects the export credit insurance market to continue to grow. "We will see more and more underwriters being willing to underwrite single risk and select risk policies," he says.