Export trade credit insurance can be a company’s smartest buy—a product that absorbs the cost of deadbeat debtors. The insurance covers credit risks caused by the default, bankruptcy or insolvency of a buyer’s customers, up to a stated financial limit. All well and good, except when the insurer midway through the policy period cancels the limits of financial protection.
This was the unfortunate situation many policyholders fell into following the financial crisis that reared in 2008. Not that the insurers did anything wrong since the policy contract wording clearly stated that they could cancel the financial limits with a 24-hour notice. The reason for the cancellation is the insurer’s sense that a customer’s buyer is suddenly an excessively high credit exposure. The policyholder must now bear this risk on its own balance sheet.