CREDIT INSURERS fear what’s below the water line

Credit insurers are taking a lot of flak in the financial press over pulling cover on buyer risks, leaving policyholders less protected in the event of their customers failing. Claims are rising of course as the economy worsens, but one of the insurers’ big problems is that they only see the tip of the “risk” iceberg. Generally speaking, the way credit insurance works in the UK market is that policyholders are given a discretionary limit (a DL) by their insurer. Policyholders can extend credit to customers up to the DL limit so long as they have obtained a credit report from an approved agency like Graydon or D&B. If they’ve done that, policyholders can trade away, confident they have insurance cover. However, if trades like this are done under the DL limit, the insurers have no idea how much exposure they have on buyer risk in this area of their business; its only when policyholders want insurance cover for amounts above their DL that they have to seek the OK of the insurer directly.That’s the tip of the iceberg they can see. It’s what’s lurking under the water line i.e. the DL, that is causing such concern in the minds of the credit insurers. As is often the case in life, its the fear of the unkown!!

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