Credit Insurance and Accounts Receivable Insurance

Beyond Indemnification: The Cadillac Story

Beyond Protection Against a Catastrophic Bad Debt Loss, Trade Credit Insurance is a Service

Have you ever been involved in an automobile accident? Likely the answer is “yes” and equally as likely the experience dealing with the insurance company was not pleasurable. 

What does this have to do with trade credit insurance, you might ask? Wrecking the car compared to not getting paid for the goods and services provided to your customer; both are losses which you expect your insurance carrier to make right. After all, you paid your premium, your expectation is the claim will get paid. 

Unfortunately, most people view trade credit insurance in a similar light as auto insurance, or property insurance, or any commodity insurance product. A loss occurs, gets indemnified, and the insured is made whole.

I would suggest the dozen trade credit insurance providers operating in the USA spend most of their marketing budget drilling down on the topic of protecting a business from the perils of not getting paid from their customers. Most agents and brokers focus on this aspect as well; protection against the catastrophic loss event.

Marketing snippets of trade credit insurance carriers

A quick gander at some of the recent marketing statements from the major trade credit insurance carriers:

AIG– Trade credit- provide credit to new customers without putting your business at risk.

QBE– Selling on trade credit terms is becoming the norm. Yet with this comes customer insolvency, overdue accounts and political risks. Trade credit insurance helps your company mitigate these risks. 

Atradius– Trade credit insurance protects your receivables from non-payment.

Coface– Credit insurance protects businesses from bad debt caused by a customer’s insolvency or payment default.

Euler Hermes– Trade receivables are protected, and your cash flow and profit line will be more secure.

Pretty much a common theme in these marketing statements and value proposition assertions. These five carriers represent almost 90% of all trade credit insurance written in the USA, all are global players and highly regarded. They all pay their claims.

So, what does this have to do with auto insurance and my Cadillac?

Beyond Indemnification… exceptional service

Trade credit insurance is much more than getting a claim paid for a customer who defaults on their trade obligation. Let me illustrate the difference through a personal event which occurred a few years ago while my wife, daughter and I were traveling to Virginia Beach on vacation. 

My wife, youngest daughter and I were making decent time from our home in Pennsylvania that Saturday in June 2004. We were already past Richmond heading south on I-64 nearing Williamsburg, Va. Traffic had stalled with the usual sea of humanity heading to the beach, and we came to a stop on a bridge. As we waited, I heard noise originating behind us and looked in my rear-view mirror to see this car weaving in and out of the lanes. At that instance, bang, this guy plowed into my Cadillac. Although I was standing on the brake, the force of the crash pushed me into the car in front of me. My Caddie had been crushed.

While the damage was significant, no one was hurt in any of the three vehicles. 

From this point forward, I experienced what I consider to be one of the finest demonstrations of customer service in managing a claim by an insurance company. Encompass by All State was exceptional in every regard. They set us up in a rental vehicle within an hour and had us on our way to Virginia Beach in a Toyota minivan. The insurance company called me the next day (Sunday) to see how we were doing and explained that likely by Tuesday they would have the claims examiner’s report regarding the state of the Cadillac. 

On Tuesday without prodding or follow-up, they called and advised me that the Cadillac is not repairable and was being declared “totaled”. They provided me with the salvage value and issued me a check which was waiting for me when I returned from vacation the following Saturday. On Thursday, I purchased a new Cadillac from Rick Hendrick Cadillac in Norfolk, Va., which I drove home with my family the subsequent weekend. 

The claims service was exceptional, I couldn’t have asked for anything more. Or, could I?

A few days after we returned home, the customer service department of All State Insurance called to ask me to participate in a survey of my experience. I eagerly agreed and I explained that I have spent my entire professional career in the insurance industry. I could only hope that our claims management professionals handled our client’s settlements as promptly and professionally as I had experienced.

I explained that this claim settlement experience had really helped me realize how to best differentiate trade credit insurance from other insurance products. The real added value associated with trade credit insurance is the management of the risk and the avoidance of the accident altogether. Insurance is a zero-sum financial proposition in most cases; however, trade credit insurance is about value added services supporting profitable sales, minimizing losses and maximizing capital management. Trade credit insurance routinely provides a positive ROI if it is understood and applied effectively.

Beyond indemnification…. Intelligence, insight, monitoring and guidance

When the interviewer asked how I might improve their services, I suggested that having “someone tapping me on the shoulder 60 seconds before impact and advising me get the hell out of the way” would be the ultimate service. No matter what financial view is analyzed, the avoidance of a loss is the most cost and time beneficial solution. 

The real value proposition of trade credit insurance is associated with analysis, monitoring, loss avoidance, mitigation and management. Trade credit insurance providers such as Atradius, Coface and Euler Hermes have deep resources which augment their client’s credit management capabilities creating a partnership having common objectives. These carriers have invested in technology, data, analytics, debt recovery and human resources, are globally positioned to be near the actual risks, utilizing predictive models, employing local debt collection and recovery teams,  and maintain deep and current buyer, sector and geo-political information, etc. 

While my Cadillac story had a reasonably happy ending, I would have rather avoided the accident altogether. Trade credit insurance is far more about the risk and receivable management services they provide beyond the expected claim settlement when avoidance is not possible. The most valuable trade credit insurance partner is the one best able to continue “tapping you on the shoulder” to avoid a loss, as well as manage a claim in a similar fashion to my Cadillac mishap.