Commercial Credit Insurance

Credit application forms and wordings

From GCNA site

Credit Insurance policies protect commercial accounts receivable.

Most companies extend credit terms to their customers, so that payment can be made after their products have been shipped or services delivered. A credit insurance policy protects an insured company against unexpected or catastrophic losses due to its customers' insolvency or non-payment.

Accounts receivable are typically a large and liquid asset on a company's balance sheet.

Fixed assets like buildings and machinery are usually protected from loss by specific insurance coverage. However, accounts receivable are often protected only by internal credit management practices.

Credit Insurance provides additional security for valuable accounts receivable. Credit Insurance has been used in Europe for over 150 years and presently over forty percent of accounts receivable there are covered by insurance policies.

In North America the use of Credit Insurance to protect accounts receivable is at a much earlier stage of development and is growing rapidly.

What types of companies should use Credit Insurance?

While all companies should consider Credit Insurance it is particularly useful for companies that:

have large, concentrated receivables from a few buyers
are presently trading on letter of credit terms and wish to offer open account terms
have limited in-house collection / credit experience
operate in low profit margin industries and must minimize their bad debt losses
want to improve their financing terms and conditions
are experiencing a consolidation of the number of potential buyers
have developed a new product but are unfamiliar with the buyers or their financial stability
are expanding their sales into unfamiliar regions or countries
manufacture highly customized and client specific products
have profitability results that are very sensitive to economic recession
are exposed to the political risks of international customers.

GATEWAY TO THE WORLD: A CO-OPERATION AGREEMENT

The Guarantee Company of North America (GCNA) has established a Co-operation Agreement with Gerling-NCM, one of the world's leading credit insurers.

Gerling-NCM - GLOBAL EXPERTISE

Gerling-NCM is one of the leading companies in the European Credit Insurance market. It was formed in 1925 by a group of financial institutions, including ABN AMRO Bank, Hermes and Trade Indemnity. Gerling-NCM has operations throughout Europe, USA and Japan (through an alliance with Tokio Marine). The Gerling-NCM Group's majority shareholder, Swiss Re, is one of the world's leading reinsurers. Swiss Re is rated "AAA" by Standard & Poors and "Aaa" by Moody's.

A GATEWAY TO THE WORLD

The GCNA - Gerling-NCM Co-operation Agreement provides access to a unique source of information on the credit worthiness of potential foreign buyers. The world-wide resources of Gerling-NCM are available to facilitate the collection of foreign accounts receivable.

POLITICAL RISK

Export sales to some countries carry a higher risk of being uncollectible due to the possibility of:

funds transfer difficulties
government restraint on currency movement
war, civil disobedience
cancellation of export/import licences

The Guarantee Company of North America's association with Gerling-NCM enables our insureds to acquire additional insurance coverage against such risks.

COVERAGE FEATURES

The Guarantee Company of North America Credit Insurance policy is designed for Canadian companies.

Buyers are underwritten on their own merits, and allocated specific credit limits
Coverage is available for most goods and services including customized products
"Basic" policy covers insolvency and protracted default for goods shipped or services rendered by the insured during the policy period
Discretionary credit limits can be granted by the insured if warranted
"Basic" policy covers buyers located in North America (Canada and USA). "Extended" policy can cover buyers in other countries
Policy period is usually twelve months
Deductibles can be applied to reduce premium costs
Coverage is available to protect the insured against pre-delivery risks or cancellation of the contract by the buyer
Repudiation coverage is available by endorsement

ADMINISTRATION OF POLICY

Applying for Credit Insurance coverage from The Guarantee Company of North America is easy and straightforward.

CLEAR APPLICATION

The nature of the applicant's business
Loss history on insolvency and past due accounts
Buyer profile summaries
Collection and credit management procedures

EASE OF ADMINISTRATION

No annual administration fee
Initial annual policy premium based on projected sales
Premium adjustments based on periodic sales reports
Payment of premiums and fees through insurance brokers. (Financing may be available)

RESPONSIVE CLAIMS SERVICE

Adjusted by our in-house professional staff.

COLLECTION ASSISTANCE

Assistance in collecting insured past due accounts.

HELPFUL CREDIT INFORMATION

Credit experience available on prospective buyers.

Need help? Check the Glossary.

GLOSSARY

POLICY AMOUNT: the maximum amount which the insurer could be liable to pay in respect of all accounts receivable covered under the policy.

POLICY PERIOD: sales contracts and their related accounts receivable fall within the policy period, usually 12 months, based on the shipment date of the goods.

COMMERCIAL RISKS: events generally within the control of buyers such as:

insolvency: inability to pay for financial reasons
protracted default: failure or refusal to pay in due course
contract cancellation: arbitrary cancellation of contract by the buyer
repudiation: buyer fails or refuses to take delivery of goods.

POLITICAL RISKS: events generally outside the control of buyers such as: - acts of war - government restraint on currency movement - cancellation of import/export licences.

BUYER CREDIT LIMIT: a specific credit limit is established for each buyer, based on such things as its financial status and past trading experience. The insurer is not liable for amounts greater than the credit limit.

DISCRETIONARY LIMITS: in particular circumstances the insurer will authorize the insured's own credit department to set appropriate buyer credit limits.

DEDUCTIBLES: the amount to be paid by the insurer for a claim may be subject to various deductibles which are established between the insurer and the insured when the policy is written.

PREMIUM AND CHARGES: the policy premium is based on estimated annual sales and is revised periodically to account for actual sales. Approval fees are charged for each credit limit request.

For additional background on these products refer to the Library section of this site. In Particular: