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A Typical Set-Up of a Trade Credit Insurance Contract
September 13, 2016 Tatiana Bertolo, Office of Small Business

The traditional set-up of a trade credit insurance contract typically takes the form of an umbrella policy, which contains a framework of terms and conditions (credit limits on the customer’s buyers) that are agreed to for the lifetime of the policy.

The actual setup and appearance may differ per credit insurer, but—broadly speaking—the credit insurance policy has the following parts:

Schedule

    This contains detail of the policyholder and of the individual policy, such as:
  • Policy number
  • Name and address of policyholder and of other parties to the policy (i.e. broker or trade financier)
  • Actual premium rate or amount and/or minimum premium amount
  • Start and end date of the policy (policy period)
  • Description of the insured's trade activities
  • Covered percentage and amounts of deductibles, if any
  • The longest credit period that the insured may agree with its buyers under cover of the policy
  • The maximum amount that the insurer is liable to with respect to all losses during the policy period
  • Specification of the costs that will be charged for credit limit handling and monitoring of the buyers
  • Overview of buyer countries covered by the policy, including any special terms and conditions for particular buyer countries
  • Currency of the insurance contract
  • The applicable law and competent court

General Terms and Conditions

This part contains generally applicable policy wording describing the insurer’s commitment, what is covered, what is not and the rules of conduct, duties and obligations of the policyholder required for coverage. It covers subject such as:

  • Description of the covered causes of loss (insolvency, protracted default, political risks);
  • Description of the insured receivables or trade
  • Exclusions (which causes of loss, which buyers, which receivables are not covered)
  • When cover for each receivable starts (typically for credit risk cover, when the corresponding delivery is made or when the service is performed)
  • Credit limits: How and when to apply or establish for a credit limit for each buyer; how long are they valid; any discretionary limits that may be set by the policyholders themselves and the right of the credit insurers to change credit limit amount;
  • What the policyholder should do to avoid or minimize a potential loss, such as take active collection measures, report non-paying buyers to the insurer, hand over the collection a specialist collection agency
  • Claims handling: when the policyholder can submit a claim, how the insured loss and indemnification are calculated, how deductibles are applied, how payments from the buyer or proceeds are allocated
  • Premium and declaration: What and when should the policyholder declare for premium calculation (i.e., the total amount of sales in the past month)
  • How the premium will be charged (e.g., in advance, fixed premium policy) and any premium bonus/surcharge arrangement that may apply to the policy
  • General obligations of the policy holder such as disclosure of facts relevant or the insured risk; consequences of non-observance of the policy obligations
  • Miscellaneous: Confidentially clause, data protection clauses, transfers of policy rights, currency conversion rules and exchange rate, how and when the policy will be renewed or cancelled.

Additional or Customer Specific Conditions, Clauses, Modules

Next to the schedule and the general conditions, policies may contain additional clauses, modules or endorsements that customize the policy to the specific needs or trading practices or procedures of the individual policyholder or that capture the peculiarities of the trade sector (like the building and construction sector or transport sector).

Learn More

Export credit insurance is a powerful tool for U.S. exporters. It equips businesses to enter new markets without the fear of foreign customer nonpayment, extend competitive credit terms and access more attractive financing. Therefore, understanding the typical setup of a trade credit insurance contract can help expedite the process of getting the contract signed and in place. To get more information on export credit insurance, check out our e-book below:

Learn how export credit insurance works!