In times of Covid-19 many corporations are looking for options, how to transfer the rising non-payment risk of their buyers from their balance sheet and/or using credit insured account receivables for asset- based financing.
Credit insurance is a well known tool for decades, providing following functions to the insured:
- Risk Assessment/ Risk Prevention
- Risk Transfer
- Debt collection
Nevertheless, in times of Covid-19 many companies are facing credit limits reductions by their credit insurers, which need to start to protect their own P&L against unforeseeable losses in these uncertain times. Even many governments had to step in, with state backed reinsurance schemes to keep credit limits up and herewith stabilizing the trust in the supply chains of their economies. Though, not all governments across the world have established these schemes and even the current implemented reinsurance schemes will expire in the near future.
Nowadays many (digital) credit risk information provider or debt collection agencies are available on the market. Hence, we need to ask the question, if credit insurance really has to offer all 3 functionalities to corporations, which already have sophisticated credit risk information sources, global credit management guidelines and debt collection processes in place. Should they focus on risk transfer only and herewith on Excess-of-Loss?
The XoL type of credit Insurance generally appeals to the needs of corporations with strong internal global credit management guidelines & procedures. Via XoL insured companies are more inclined to bear certain amount of risk as per historical experience and want to protect themselves against particularly high one-off bad debts or a series of bad debts that exceeds their normal experience and are interested in this approach.
In this kind of credit insurance partnership between insurer and policyholder, the policyholder’s credit control practices form an integral part of the insurance policy. In exchange for taking certain risk, the policyholder has been given certain level of discretion to run their business affairs, whereby the insurer gets involved only for higher credit limit approvals on a non-cancelable basis.
Listen to the podcast with Wibke Kuhnert, Corporate Director Finance at Henkel AG & Co. KGaA , Burkhard Wittgen, Member of the Executive Board at Aon Credit Solutions, Germany and Stuart Lawson, CEO at Aon Credit Solutions, EMEA about Henkel*s experience in implementing a global XoL program in collaboration with Aon.
“Henkel operates globally with a well-balanced and diversified portfolio. The company holds leading positions with its three business units in both industrial and consumer businesses thanks to strong brands, innovations and technologies. Henkel Adhesive Technologies is the global leader in the adhesives market – across all industry segments worldwide. In its Laundry & Home Care and Beauty Care businesses, Henkel holds leading positions in many markets and categories around the world. Founded in 1876, Henkel looks back on more than 140 years of success. In 2019, Henkel reported sales of more than 20 billion euros and adjusted operating profit of more than 3.2 billion euros. Henkel employs more than 52,000 people globally – a passionate and highly diverse team, united by a strong company culture, a common purpose to create sustainable value, and shared values. As a recognized leader in sustainability, Henkel holds top positions in many international indices and rankings. Henkel’s preferred shares are listed in the German stock index DAX.” via Henkel.com
https://vimeo.com/user104243551/review/456916336/d94aeb27c
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