Trade credit insurance
Produced in partnership with Michael Morris of Clyde & Co LLP

The following Insurance & Reinsurance practice note produced in partnership with Michael Morris of Clyde & Co LLP provides comprehensive and up to date legal information covering:

  • Trade credit insurance
  • Trade credit insurance
  • Types of risk insured
  • Types of credit insurance
  • Credit limits
  • Insured percentage
  • Maximum payment term
  • Maximum extension period
  • Waiting period
  • Trade credit insurance—claims process
  • More...

Trade credit insurance

Trade credit insurance typically provides protection to a policyholder against non-payment of accounts receivable, due to the protracted default (ie a failure to pay an invoice after the due date has passed) or insolvency of its buyers or a political risk.

Credit insurance accordingly seeks to remove the credit risk from the policyholders' balance sheet, thereby improving their profit and loss accounts. Bad debt provisions may also be reduced as a result.

Trade credit insurance

Types of risk insured

Trade credit insurance risks are ordinarily classified into commercial and political risks:

  1. a ‘commercial risk’ is typically defined as the insolvency of the insured's buyer resulting in a payment default or the buyer's failure to pay for the goods on the due date

  2. a ‘political risk’ is typically defined as the risk that a government buyer or country prevents the fulfilment of a transaction or fails to meet its payment obligations. Examples include:

    1. regulatory or legislative payment freezes

    2. expropriation and confiscation of goods

    3. import and export embargoes

    4. unforeseeable extraordinary measures of third countries

    5. war, hostilities, rebellion, insurrection, revolution, riot or civil commotion abroad, preventing the payment or collection of the contract price

Types of credit insurance

There are various types of cover available in the market, including:

  1. ‘wholeturnover cover’—traditional wholeturnover policies cover the entire business to business turnover of the insured company and its buyers (domestic or export or

Popular documents