The New Normal in Trade Credit Insurance Claims
Monday, August 15, 2011 at 01:54PM Submitted by ICBA Asia, Brazil, India and the USA via the IRC Read & Delete Monthly
As the third anniversary of the global financial meltdown that brought down Lehman Brothers, Shearson, Fannie Mae and Freddie Mac approaches, it’s a good time to take a look at an ICBA brokerage’s claims history and claims as found today. The bad news is that a record-breaking number and record-breaking dollar volume of credit insurance claims were filed in the U.S. since the Fall of 2008. The good news for ICBA clients is that insurers paid claims across the board.
As the global economy continues on its rocky road toward recovery, claims activity in the U.S. is slowing down, but is still at a level – depending on the measure – three to six times as intense as the pre-crisis mean.
It is fair to say that credit insurance programs are predicated on sound credit management skills. The credit practices and collection capabilities that make companies attractive to the credit insurance industry in the first place, also stand clients in good stead as first and second lines of defense when the "cat gets among the pigeons" and the economy goes into a tailspin, as happened for two years after September 2008. Insurance coverage was there to be used in the worst-case scenarios.
Good credit managers need to continue their close scrutiny of buyers and diligent collection efforts going forward. In this post-crisis age, there is still no better formula for the management of a credit department or credit insurance policy than to know your buyer, know your lender, demand financials, and maintain detailed, accurate files.
Credit insurers are good and fair partners at time of claim. That is, claim denials are not based on subtle complexities of the credit insurance contract. The Top Five Reasons for Claim Denial below likely capture about 80% of the reasons for serious problems at time of claim or claim denials.
Top Five Reasons for Claim Denial
- Late claim filing
- Unpaid premium or unreported shipments
- Unauthorized rescheduling of original terms of sale
- Shipment into financial difficulty (example: to a buyer +90 days past due)
- Required claim filing documents missing or incomplete
For more ways to minimize loss, get in touch with your local ICBA broker.
(ICBA Asia, Brazil, India and the USA is also known as International Risk Consultants, Inc. (IRC), and has agreed to continue to share these posts with the ICBA blog.)
