Preliminary stages of the non-cancelable limits
In trade credit insurance, there are various possibilities or clauses to include “non-cancelable limits”.
In the area of non-cancelable limits, there are various models:
- Contract risks: These are possible for up to one year (e.g., with energy suppliers or malt factories).
- Binding contracts: If you have a Binding Contract with a buyer and the credit limit is reduced or cancelled by the insurer, there is an option for the insurer to continue to provide coverage for the supply of goods and services within 6 months of notification of the cancellation or reduction. The contract must have been entered into for valid coverage after cancellation or reduction within the 6 months prior to notification, or there is a supply or service plan in place which was entered into within the 6 months prior to notification and from which you cannot be released.
- Non-cancellable limits are valid for 3, 6 or 12 months, analogous to the contract term
- It can be used as a tool to secure the main and major customers as well as to safeguard their livelihood (e.g., in the automotive industry)
- Normally only possible via special providers on the credit insurance market
- We can place a corresponding clause for non-cancellable limits with the classic credit insurers.
- In this policy, credit checks and underwriting are offered
- The policy is a combination of service and coverage security through external rating triggers
- Rating triggers are monitored with references to independent ratings and in the event of a deterioration of a previously agreed reference value, a credit limit is reassessed. Any subsequent adjustment that may be required is only made after contact with the policyholder and a period of 30 days
- The insurer monitors compliance but does not focus on assessing the policyholder’s credit management
- Examples of policy level triggers:
- Deterioration in the creditworthiness of the buyer (balance sheet ratios)
- The creditworthiness of the buyer’s country deteriorates
- The credit rating agency downgrades the buyer’s rating
- Buyer publishes corrected balance sheet figures
- Late publication of balance sheet figures by the buyer
- Non-extension of credit lines of the buyer
- Change in ownership of the buyer
Additional or alternative triggers can be agreed upon per buyer on a case-by-case basis