Useful Credit Insurance Terminologies

Useful Credit Insurance Terminologies

Advance assignment clause:

The advance assignment clause signifies the assignment of future receivables. This can be very useful, if e.g. the policyholder’s customer sells the goods delivered by the policyholder to a third party before payment and becomes insolvent. With an advance assignment clause the policyholder has a claim against the third party involved.

Annual aggregate:

Of the total of all indemnifications which the insurer has to render for the claims occurred in one insurance year, the insured shall retain for his own account the aggregate first loss stated in the insurance policy, irrespective of other stipulations with regard to the retention (as the uninsured percentage or the franchise deductible). This amount will be deducted from the indemnification.

 

Application for inclusion of a new insured buyer:

The application which the policyholder has to submit if he wants to include a new customer in his insurance cover.

 

Bank status report:

Report obtained for example from the supplier´s bank by the supplier about a (potential) customer. The bank obtains its information direct from the customer´s bank or from the General Credit Protection Agency, Schufa, an infopool for banks.

 

 

(Domestic) Commercial Credit Insurance:

Insurance for bad debt losses sustained by the policyholder in respect of receivables arising out of deliveries of goods to or the performance of services in the UK.

 

Composition proceedings:

Extra-judicial proceedings to avest insolvency in which the creditors obtain a part of their claims.

 

Cover:

Cover is granted for receivables out of delivery of goods and services which occur during the policy period and which turn into bad debt losses in the consequence of the insolvency of an insured customer which has as well occurred during the policy period.

 

Covered risk:

Term used in credit insurance for a customer of a policyholder if the policyholder’s receivables due from the customer are insured.

 

CP:

Abbreviation for credit period

 

Credit limit:

The credit limit is the amount of cover granted for receivables due from the policyholder’s customer. If a limit of e.g. EUR 100,000 is granted, the policyholder’s receivables from this customer are insured up to this limit. The amount of the limit depends on the creditworthiness of the respective customer.

 

Credit notification:

Insurers reply to the policyholder’s application for inclusion of a new insured buyer. It documents whether and in which amount the policyholder’s receivables due from his customer are insured.

 

Credit period:

Period allowed for payment or the expiry of the payment term  fixed by the supplier until which the customer has to pay, e.g. 30, 60, 90, 120 or 180 days.

 

Credit rating fee:

Costs borne by the insured for credit assessment. For this service the policyholder  pays a credit rating fee which is considerably lower than the actual costs for credit assessment. This fee has to be paid independently of the result of the assessment because the effort required is the same.

 

Credit report from an agency:

Report obtained from a credit information agency.

 

Credit underwriting:

Examination of the creditworthiness of companies.

 

Creditworthiness:

A customer’s ability to pay and payment behaviour.

 

Current account:

A business relation where deliveries and/or services rendered by the supplier are set off against the payments made by the customer and the balance is calculated and settled.

 

Declaration of turnover:

Monthly notification of achieved and insured turnover as basis for the premium calculation. The balances can also be the basis for the calculation instead of the turnover.

 

Deterioration of the risk:

Circumstances which weaken the creditworthiness of your customer.

 

Discretionary limit:

Maximum amount without the obligation to apply to the insurer for a limit. This is the “borderline” between the policyholder’s small customers, for which he decides how much credit to grant, and his big customers for which the policyholder sends limit requests to the insurer.

 

Domestic commercial credit insurance:

Insurance for bad debt losses sustained by the policyholder in respect of receivables arising out of deliveries of goods to or the performance of services for buyers in Germany.

 

Duties of the insured:

The insured companies have duties to the insurer which are regulated in their policy conditions.

 

Documentary evidence of loss:

Documents which are required for the examination if the prerequisites of insurance coverage are fulfilled.

 

Experience loading:

This means that a higher or lower premium is agreed between the Insurer and the Insured for the following year, depending on the loss ratio of the policy during the current year. For all “special policies” a risk-based experience loading is determined.

 

Factoring:

This means that a higher or lower premium is agreed between the Insurer and the Insured for the following year, depending on the loss ratio of the policy during the current year. For all “special policies” a risk-based experience loading is determined.

 

 

Guaranteed Minimum Premium (Guarantee Premium):

Irrespective of the amount of premium actually paid during the year, a minimum premium amount is agreed on. As a rule the premium actually paid always exceeds the minimum premium.

 

ICISA:

International Credit Insurance & Surety Association The international association of private credit insurers. The list of members is published annually in a Directory.

 

ICL:

Abbreviation for Insurance Contract Law

 

Increase of risk:

Circumstances which weaken the creditworthiness of the policyholder’s customer.

 

Indications of creditworthiness:

Notification period exceeded, extensions to credit period, bills of exchange prolonged, high gearing, too high interest charges on capital.

 

Initial credit assessment (of buyer):

Examination of the abiltiy of companies to pay the insurer or companies acting on behalf of the insurer.

 

Insolvency:

Insolvency is proved if

  • an extra-judicial liquidation or quota settlement has been achieved with all creditors or if
  • a judicial execution undertaken by the insured has not led to the full satisfaction of the claim.

 

 

Insolvency code:

Insolvency is given when insolvency proceedings are opened, are dismissed for insufficient assets or comparable cases of insolvency have occurred abroad.

 

Insurance against bad debts:

Guarantee for the receipt of receivables. In the wider sense: credit management with the goal of actually getting the money.

 

Insured event:

An insured event occurs if there is no doubt that a customer is insolvent or if protracted default occurs. (also Insolvency)

 

Insured percentage:

Insured percentage is the part which the insurer indemnifies if required.

 

Invoice:

Rendering of accounts, charging something to someone’s account.

 

Invoice date:

The day on which the invoice for the policyholder is set up.

 

Limit requested:

Amount of cover requested by the insured for receivables due from a customer.

 

Loss:

All cases in which the insured event has occurred or is to be expected.

 

Loss ratio:

The loss ratio is the ratio between claims paid (and claims reserves set up) within one policy period and the premium paid in the same period.

 

Maximum liability:

Maximum indemnification in one insurance year, for example 20 times the annual premium (stipulated under point 7 of the schedule).

 

Maximum period allowed for credit after due date:

Expiry of the duration of credit agreed between the insurer and the policyholder of e.g. 30, 60, 90 or more days. Corresponds principally to the credit period granted to the policyholders’ customer. If the customer has not paid after the expiry of the agreed period, or if the policyholder realizes that his customer will exceed the maximum period allowed for credit, the policyholder has to inform the insurer immediately.

 

Minimum premium:

The minimum premium is the guaranteed premium per insurance year. It is required because the installation and handling of a credit insurance contract causes considerable costsThe difference between the actually paid premiums and the minimum premium is only invoiced if the amount of the minimum premium is not achieved.

 

Notification for premium calculation:

The monthly notification of outstandings / turnover must be made to the insurer by a fixed date every month, which is stipulated in the Schedule to the policy. Some policies only have a single annual notification date.

 

Notification of balances/outstandings:

The policyholder informs the insurer on a monthly basis on his open accounts.

 

Notification of overdues:

The policyholder has to inform the insurer immediately when a customer’s payment is overdue (stipulated in the contract).

 

Notification period exceeded:

When a customer does not pay within the stipulated credit period. If this is the case, the insurer has to be informed immediately.

 

Notification period for claims:

Claims are to be reported within a certain period of time which has been fixed.

 

NPE:

Abbreviation for notification period exceeded

 

OECD:

Organization for Economic Co-operation and Development

 

Overdues:

Receivables which have not been paid within the credit period paid upon.

 

Pending claims:

Imminent insured loss.

 

Policyholder:

A policyholder is a supplier who has concluded a credit insurance whose open accounts are totally or partly insured.

 

Political risk:

A term covering all types of politically caused risks affecting the economic, administrative and social situation of a country, e.g. war, boycott, embargo or economic blockade, civil war, civil commotion, strikes, lock-out, confiscation, acts of public authorities, moratorium on payments and the transfer and convertibility risk.

 

Premium:

The insurer calculates the premium from the lists of monthly outstandings or the turnover figures provided by the policyholder. These premiums are payable immediately. They are debited from the policyholders’s account provided that he have given a direct debit mandate.

 

Premium refund:

This clause of the policy contains provisions regulating the refund of a certain percentage of the premium paid if a year has been free of claims (no claims rebate) or the loss ratio remained below a certain stipulated level. This is always subject to the agreed minimum premium, which remains the bottom line whatever the premium refund calculated may be.

 

Pre-shipment risk:

Suppliers can already lose a lot of money in their dealings with customers before they have delivered goods or charged for them. Example: Production of packaging material with the customer´s logo. Order value: EUR 200,000.  The Customer becomes unable to pay before delivery. Goods are unsaleable to other customers. The loss: EUR 130,000  manufacturing costs. This risk is generally insurable.

 

Prolongation of a bill of exchange:

Extension of the maturity agreed upon on the drawing of the bill.

 

Proof of debt:

Proof of the occurrence of a loss

 

Protracted default:

Protracted default occurs after a certain maturity of claim.

 

Provision for claims outstanding:

A loss reserve is built up as soon as a loss becomes definite and the claim of the policyholder is known. The amount of the insured remaining claim is fixed under consideration of the individual case.

 

 

Questionnaire (proposal form) CRQ:

This is the form which is to be filled out by a prospective customer, either in written or electronic form, giving details of his business and company. It is the basis for the Insurer making a quotation and suggesting a particular set of policy conditions.

 

Receivables guaranteed by bills of exchange:

Receivables for which the customer issues a bill of exchange to the supplier. These claims are open accounts until the bill of the exchange has been honoured.

 

Reduction:

Reduction of the credit limit on receivables due from a customer if he either no longer needs the existing sum or if the customer’s creditworthiness deteriorates.

 

Reduction of a limit:

Stipulation of a lower sum insured, due to a worsening of the economic situation of your customer.

 

Reinsurance:

Insurance taken out by the insurer himself for the risks he has assumed for his policyholders. The ceding insurer (primary insurer) passes on a portion of the risk to another insurer (reinsurer). Reinsurance can be provided either for direct insurance (in which case it is termed reinsurance) or for reinsurance (so-called retrocession of the risk).

 

Retention of title:

Transfer of ownership with the effect that the goods supplied remain the property of the supplier until the customer has fully paid for them. A distinction is made between simple, extended and prolonged retention of title.

 

Reverse factoring:

Reverse factoring is a reversed procedure of factoring in which a finance company is as well set up by the buyer/purchaser of goods. The finance company pays the supplier by taking advantage of cash discounts.The finance company is refinanced via a factoring company. The financing costs are between 30-50% of the cash discount received through this construction. The remaining proceeds are shared between the finance company and the factoring company.

 

Risk type:

There are different kinds of risk: e.g. central regulation with adoption of del credere, pure adoption of del credere, own business, financing through bills of exchange of the involved companies.

 

Schedule of insured buyers:

The schedule of insured buyers is a summary of all insured buyers of the policyholder with the respective limits on them. The current list is also available online at any time.

 

Silent factoring:

The debtor is not informed of the cession of the claim. The collection of the claim is thus handled as if no factoring contract had been concluded.

 

 

Special Policy:

Policy for companies with excellent credit management. The premium is based on the respective risk under consideration of franchise deductible and annual aggregate which results from the maximum liability.

 

 

Submitting a request:

The policyholder submits a request asking the insurer for example to include a new customer in the insurance cover, to change the credit period or to increase the credit limit.

 

 

Sum insured:

The sum insured is the maximum sum of the total claim against an individual insurable customer. If the insurer grants its policyholder, e. g. in a credit notification, a cover of EUR 100.000 for one of his customers, this is the sum insured.

 

Supplier credit:

Means of financing required by the economy. Period and method of payment are negotiated.

 

 

Suspension of deliveries:

After a suspension of deliveries, further deliveries are not insured.

 

 

Tenor of a bill:

The time from the drawing to the payment of a bill of exchange.

 

Uninsurable risk:

The insurance cover does not apply to e.g. bad debt losses against public buyers, bad debt losses due to war, strike or against customers in which the policyholder is directly or indirectly involved by holding a majority participation.

 

Uninsured percentage:

The uninsured percentage is the partial share in the bad debt loss which is borne by you and which is thus not insured.

 

 

Uninsured percentage cover:

Inclusion of those costs which you have incurred through the acquisition, processing, manufacturing and / or production of goods/ services.

 

 

Unspecified customer:

The totality of the policyholder’s customers which the policyholder does not need to name and which are globally insured.

 

 

Unspecified part:

Part of the regular customers. Customers with smaller turnover respectively balances below an agreed size, which the policyholder does not need to mention to Euler Hermes AG because they are automatically covered.

 

 

Comments are closed.