Trade Credit Insurance By
What is Credit Insurance •Financial service product that protects one of the largest assets i.e. Accounts Receivable (Sundry Debtors).
Types of Credit Insurance •Domestic credit insurance •Export credit insurance
Service Areas
•Provides indemnity against failure of customers to pay their account receivables.
Types of Risks Covered Coverage
Domestic
Export
Insolvency
√
√
Protracted Default
√
√
COMMERCIAL RISK
Contract Repudiation (Only by ECGC)
√
POLITICAL RISK Delay/Block in payment due to Govt.
√
War, civil disturbances
√
New Import Restriction/Cancellation
√
Shipment Diversion/interruption
√
Any other loss outside India beyond control of both exporter and buyer.
√
Risks not covered (Domestic) Arrangements/compromises without our approval
Sales to subsidiaries (Controlling interest)
3
1
Default of insured’s agents/employees
7
5 4
2
Claims in excess of approved credit limits
6
8
Government bodies Violation of credit management procedures
Expropriation, confiscation etc. of buyer's assets
War between the superpowers
3
2
Currency fluctuations
9
Dishonesty / Fraud of Insured
Risks not covered (Export)
1
Interest, taxes etc.
Disputed debts
5
4 Contract cancellation by buyers
War between India and the buyer’s country
Timeline illustration of protracted default Further deliveries beyond the Maximum Extension Period (MEP) will not be covered. 1 Jan 2020 1 March 2020
1 May 2020
30 Aug 2020
1June 2020
-----------Claims Waiting Period 180 days-------------
Original Due Date
60 days
Stop Cover
30
Claim filing days date
90 days
End of Waiting Period 180 days
Terms of Payment from date of invoice 60 days
# Please ensure a valid and approved credit limit before starting invoicing to the buyers Note: The dates used in the above illustration have been simplified on a month-by-month basis for ease of understanding. We will adopt an exact calculation (by number of days) of all relevant due dates in an actual occurrence.
Claims Payment 30 days
• Insurable credit turnover (Cash sales, Advance sales, L/C sales & sales to Govt. Agencies). • Credit Period.
• Number of buyers and the spread.
Pricing depends on (Private Insurer)
• Past losses
• R/I quote and support. • Securities, if any • Countries where the buyers are located.
Policy has 4 Deductibles / Limits
Maximum liability (IML) usually 25 to 30 times annual premium paid, per policy.
Credit limit per buyer (maximum liability towards that buyer)
04
01
03
02
Deductible 20% as per IRDA regulations
NQL (non-qualifying loss) / franchise; losses only beyond this are paid in full or excess
Policy Model
Specific Policy
Single Buyer Exposure policy (SBEP)
Whole Turnover Policy
Specific Shipment Policy (SSP) Shipping Comprehensive Risks Policy (SCR)
Exports Turnover Policy (ETP)
Multi Buyer Exposure Policy (MBEP)
Policy Offer by ECGC Export Type of Policy % cover Type
MBEP 80% Whole Turnover
Payment Terms Covered DP, DA upto 180 days, LC Declaration Quarterly Statement Single loss limit per buyer10% of Agrigate Loss Limit Countries covered Open Countries buyers insured Buyer In Open Country processing fee Rs. 15,000/- All Buyers Afghanistan, Burundi, Central African Republic, Democratic Republic of Congo, Eritrea, Iraq, Lebanon, Libena, Libya, Maldives, Marshall Island, Montenegro, Somalia, Turkmenistan, Ukraine and Yemen,North Korea, Palestine, Sudan, Countries Not Covered Syria, Venezuela and Western Sahara
SBEP 80% Limit Based Liability DP, DA upto 180 days, LC Not Required Open Countries Single Buyer in Open Country Rs. 2,000/- Per Buyer Afghanistan, Burundi, Central African Republic, Democratic Republic of Congo, Eritrea, Iraq, Lebanon, Libena, Libya, Maldives, Marshall Island, Montenegro, Somalia, Turkmenistan, Ukraine and Yemen,North Korea, Palestine, Sudan, Syria, Venezuela and Western Sahara
ETP/SCR 80% Whole Turnover DP, DA upto 180 days, LC Monthly All countries All Buyers Rs. 500/- Per Buyer
NA
Countries covered under ECGC 16(6%)
7 (2%)
216 (92%)
Open Cover RCC - I RCC - II
Pricing depends on Export Credit Guarantee Corporation (ECGC)
Anticipated Turnover (INR)
Country
4
3
Contact Details
5
2 Buyer Name
Loss Limit Required (INR)
1
6 Pricing
Payment Terms
Claim Loss Calculation Example: Given : Deductible - INR 5.0 Mln NQL – INR 0.25 Million Indemnity - 85% Claim will be lodged only if loss amount is more than NQL. Illustration : INR in Million Buyer
Loss Amount
Deductible
Claim Amount
Claim Payable Indemnity (85%)
A
0.20
Nil
Nil
Nil as amount less than NQL
B
20.0
5.0
15.0
12.75
C
2.00
Nil
2.0
1.7
Required Documents for Insurance Claim • Contract(s). • Invoice(s).
• Proof of Delivery to the buyer( Documentary evidence) • Correspondence to and from the Buyer, guarantor, collection agent, bank or agent showing steps taken to effect collection and to mitigate the amount of the Loss. In case of insolvency of the Buyer, submit all relevant documentation evidencing such insolvency. • Sales/Receivable ledger with the Buyer showing shipment (or billing) date, due date, and payment date, commencing at least one year prior to the sale which resulted in this Loss. • Documentation supporting extension of credit to the Buyer, including financial statements, agency reports, trade references, and internal reports and visit reports • Other documents as may be required.
Thank You
Disclaimer The information and material provided in this presentation do not constitute an offer or solicitation for the purchase or sale of any security and financial instrument. The information may be obtained from various sources and PINC and/or its affiliates do not represent that the information is accurate or complete, and it should not be relied upon as such. PINC accepts no liability whatsoever for any direct or consequential loss arising from the use of this material or its contents. All estimates and opinions provided herein constitute the original researcher’s judgment as of the date of the report and may be subject to change without notice. PINC will not be responsible for the consequences of reliance upon any opinion or statement contained herein. The returns on the products
discussed in this material are not guaranteed by any bank unless specifically stated and are subject to investment risks, including possible loss of the principal amount invested. An investment in any product should be made only after careful study of the most recent sales prospectus, term sheets, relevant fund regulations and basic legal information contained therein. Furthermore, investments in foreign currencies are subject to exchange rate fluctuations. Before entering into any transaction, you should consider the suitability of the transaction to your particular circumstances and independently review (with your professional advisors as necessary) the specific financial risks as well as legal, regulatory, credit, tax and accounting consequences.