Trade Credit Insurance
Assets - buildings, plant & machinery & equipment or inventories are insured whereas a large component of asset i.e., Accounts Receivable remain uninsured.
Book profits will be lower or turn negative if the funds are not realized against the goods sold. Here this Trade Credit Insurance helps to minimize the loss suffered by a seller if their buyer defaults.
The policy insures trade accounts receivables against non-payment due to
Insolvency,
Protracted Default, and
Political Risk (only in case of export buyers)
Benefits of Credit Insurance
Protection against trade bad debts
Increased sales by identifying buyers from new markets
Access to better borrowing terms by assignment of receivables to banks (in certain markets)
Credit information resource
Collection services for bad debts
Rules of Credit Insurance
Rule 1: What is insured: Unsecured Receivables
Rule 2: What risk is covered: Credit Risk + Political Risk
Rule 3: Whole turnover concept – Entire unsecured receivables to be covered. Selecting debtors not allowed
Rule 4: Premium is charged on turnover
Rule 5 : Buyer (debtor) wise credit limits will be approved by IL. These limits are fundamentally the cover available in the policy.
Product Features
Indemnity: Up to 90% of the Loss Amount.
RMinimum Premium: Rs. 10 Lakhs calculated on Estimated Turnover
Minimum Premium (MP) Retention: 80% of the premium by Insurance Co.
Estimated Turnover is the credit sales of next 12 months (Note 1)
Maximum Limit of Liability (MLL) is guaranteed which maximum sum total of claims that can be paid in a single policy period. This is calculated as 40 to 50 times of the premium paid which will be the Sum Insured. (Note 2)
Maximum Credit Period of up to 180 days, Maximum Notification Period of up to 210 days
Buyer-wise credit limits to be obtained on each buyer. It can be increased.
Credit Limit represents the maximum exposure that can be taken by the seller on a buyer at any given point of time
Sale of Subsidiary can be covered on Additional Insured basis.
Estimated Turnover (Note 1)
|
|
Rs. In Crores |
| Whole Turnover | 1,500 |
| Less: Sale to Subsidiary(ies) | 450 |
| 1,050 | |
| Less: Sale on LC / Cash / Advance Payment | 300 |
| Turnover on which Premium will be charged | 750 |
Sale figures of Subsidiary(ies) to be given Region-wise
Exclusions
Genuine trade disputes
Sale to subsidiary & associates
Sales made against irrevocable confirmed letters of credit (LC).
Sales against LC can be considered for small banks on case to case basis with Ins. Co’s consent in which case both the buyer and the bank has to default to get the claim.
Sales against advance payments
Sales to individuals or for non-commercial use
Consequential losses & Interest / Penalty on late payment
Loss in excess of Credit Limits
Nuclear Risk
Loss due to Foreign currency fluctuations
A war between two or more of the following countries: France, China, Russia, U.K. and U.S.A.
Maximum Limit of Liability (Sum Insured) – Note 2
|
|
Rs. In Crores |
| Premium Rate | 0.15 |
| Premium Amount | 1.13 |
| MLL / Sum Insured (50 Times) | 56.25 |
Claim
For Insolvency: Claim can be filed directly. It will be paid within 30 days.
No claim over and above the limit
For Domestic claim: After 120 days claim can be filed within 30 days. Means time to settle is 150 days
For Export claim: After 150 days claim can be filed within 30 days. Means time to settle is 180 days
Debt Recovery Team will be deployed to get the outstanding being recovered. Consequent on expiry of MCP claim will be paid
Claim is settled on Buyer Basis.
Non-Qualifying Loss (NQL) / Franchise of Rs.2.50 Lakhs is applied.
Deductible can be imposed for Client(s) with not good debt history or the buyer might be denied the coverage.
Claim Documents
Duly filed Claim Form with stamp & signature
Invoice Copies
Statement of Account
Balance Confirmation
Proof of delivery
Purchase Order
Sales Contract
Debit / Credit Note Copies (If any)
Copy of communications with the debtor following up for payment
Any other, as required on the case.
Cost Involved
Premium depending on the mutually agreed premium rate.
Credit Limit Fees payable for assessment of buyer credit limit fees. (Per Buyer on which credit assessment is done by Insurance Co.)
Intervention Fees for notification of Overdue account / claim notification. (90% borne by Ins. Co. 10% by Insured of the Debt Recovery Team’s Fees). Consent of Insured will hold.
Collection Fees in case debt collection is opted for and can be mutually agreed upon before availing the services.