By Rob Downey

Let's talk about claims and the claims process. As with Robert Frost, "Spring is the mischief in me," so last things first: There is no such thing as a stand-alone "claims process" in the credit insurance industry. That is, there is not a separate, significant process that begins at time of claim filing.Samuel Beckett

Realistically, the process of succeeding at time of claim begins at policy inception, is dependent upon attentive administration during the policy period, carries with it the necessity of good documentary habits relative to credit management, and presumes – depending upon policy type – a greater or lesser exercise of regular, sound credit judgement, whether on a single insured receivable or portfolio of receivables.

When a claim arises, the insured must "freeze the frame" and give evidence of the foregoing diligence, according to the insurance company'sNotice of Claim and Proof of Lossformat. This short but detailed form should be introduced to the insured during policy delivery.

Many trade credit insurance brokers say of claims, "Everything works if the client has." By this we mean that claims get paid if the client (with their broker’s assistance) has attended sufficiently to managing the insuredres(thing) all along. In our business the "thing" is a dynamic and intangible collection of credit judgement, business practices, sales contracts, modifications, reporting requirements, underlying performance measures, and cumulative ledger histories used collectively to determine creditworthiness at time of shipment and insurability at time of claim. Far different from the actuarial risks assessed by auto, life or homeowners insurance, trade credit deals present risks that vary a great deal more than real estate over time, and international deals are subject to odd, solitary, even unique risks. These specifics make for all the difficulty in understanding coverage, all the slipperiness in maintaining coverage, and all the seeming mystery in qualifying for satisfactory claims settlement.

We call the client work needed to turn intangible concepts likejudgement, receivable, enforceable, andcreditworthy, into money-in–your-pocket at claim settlement time by an acronym: DAMN. This is a mnemonic device that summarizes Beckett’s "better failure" under a receivables insurance policy. It stands for: Documentation (purchase orders, invoices, bills of lading, and possibly ledger, contract, and guarantees all in order); Arbitration (product disputes or other limitations on enforceability resolved before filing); Mitigation (usually straightforward showing that seller did not continue shipping to a buyer in serious arrears or in the face of a known loss situation); and, Notification (timeliness in claim filing, alerting insurers of past dues, telling insurers of facts or circumstances likely to give rise to a claim, e.g., bankruptcy filing).

Two final points about claims success. First, insurers look to pay claims in the credit insurance industry assuming an insured has acted in good faith and has good rights on enforceable trade debt to give in subrogation. Second, our clients do better at time of claim when they work with the insurance company and help build the case against the obligor-in default, rather than vice versa. According to results of an investigation I undertook a decade ago for my own amusement and illumination, the top four reasons in the list below account for over 90% of all claim denials in the credit insurance industry.

Top ten reasons for claim denial
• Shipping when customer is excessively past due, usually 90 days
• Missing the claim filing deadline
• Non-payment of premium due to inaccurate sales reporting
• Unauthorized reschedulings
• Key required documents missing or documents not properly executed
• Unenforceable trade obligations or guarantees
• Unresolved disputes
• Shipping despite knowing a customer is experiencing financial difficulty
• Lapse of enforceable guarantee
• Credit limit is expired

(Rob Downey is one of the founding partners of International Risk Consultants, Inc. (IRC) www.irc-group.com– a globally-integrated trade-finance and credit insurance specialty brokerage, which serves as the operating member of ICBA for Mexico, Brazil, India, China and the U.S.)