How To Underwrite Trade Credit Insurance

November 12, 2019

How To Underwrite Trade Credit Insurance | Niche Trade Credit Sydney

Are you wondering how an insurance broker will underwrite a trade credit insurance policy? This type of policy is a great safety net that helps protect your company from political risks and bad debts/protracted default if clients fail to pay, and eliminates the need to hire debt collection services.

The way it works is simple – if your clients do not pay for your services according to your payment terms, your trade credit insurance policy will compensate you. This credit management tool lets you protect your accounts receivable and your working capital when customers fail to pay for your goods or services. But how do you underwrite these policies? Let’s take a look at some essential steps in the process now. 

  1. Each Of Your Clients Will Be Underwritten Individually

Your trade credit insurance provider will work with your small business and get a list of clients. Then, using a risk management tool, it will assess the risk of each client individually – and determine the likelihood that they will default. 

Then, the cost of insuring all of your clients will be put together in a credit portfolio. This is one of the biggest factors that determines the cost of your trade credit insurance policy. 

  1. A Limit Will Be Placed On Each Client’s Purchases And Credit

As part of your policy, your underwriter will place credit limits on your clients. This ensures that when your company sells goods to a buyer, you do not expose yourself – or your insurance company – to excessive risk. If you fail to abide by these terms, your policy may not protect you from default.

  1. Your Trade Credit Policy Will Outline What Happens When Clients Fail To Pay

Trade credit insurance protects you when your clients don’t pay. But every business is different. Your underwriter will work with you to develop a policy and outline what happens when a client fails to pay, including the time frame for seeking compensation, forms and processes that must be done to file a claim, and more. 

  1. Your Underwriter Will Work With You To Determine Covered Events 

Your underwriter will work with your company to determine what coverage should be provided – such as political risk insurance, and pre credit risk to protect you if a client defaults before your project is completed, or breaks the terms of your contract.

  1. You Will Work WIth Your Underwriter To Determine Your Percentage Of Compensation

Usually, a trade credit insurance policy does not compensate you for 100% of your losses – but for a set percentage, such as 75% or 85% of your loss.

The percentage of coverage you choose has a big impact on the cost of your insurance premiums, so you’ll work with your underwriter to determine what percentage will work to protect your finances – but still provide you with a reasonable cost for your policy. 

  1. You Will Accept Your Policy And Coverage Will Begin 

Once your underwriter completes your policy, you will accept it and your coverage will begin. Then, you can get peace of mind – knowing that your business is protected even in the event of default!

Need Help Learning About Trade Credit Insurance? Contact Us!

Still need more information about trade credit insurance? At Niche Trade Credit, we’re a leading provider of trade credit insurance brokerage services in Australia – and we can help you find an insurance underwriter that’s perfect for your company. Give us a call today on 02 8416 0670.

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