Export trade credit insurance can be a company's smartest buy—aproduct that absorbs the cost of deadbeat debtors. The insurancecovers credit risks caused by the default, bankruptcy or insolvencyof a buyer's customers, up to a stated financial limit. All welland good, except when the insurer midway through the policy periodcancels the limits of financial protection.

This was the unfortunate situation many policyholders fell intofollowing the financial crisis that reared in 2008. Not that theinsurers did anything wrong since the policy contract wordingclearly stated that they could cancel the financial limits with a24-hour notice. The reason for the cancellation is the insurer'ssense that a customer's buyer is suddenly an excessively highcredit exposure. The policyholder must now bear this risk on itsown balance sheet.

No figures exist on how many policyholders received suchluckless news, but it was likely more than a few, given the deeprecession that ensued. The limit cancellations resulted in whatScott Ettien, senior vice president, trade credit and politicalrisk, at insurance broker Willis calls a “black eye” for theinsurers providing the cancelable limit coverage, despite thelegality of their decisions. Combined with higher prices for theinsurance, insurance premium volume fell precipitously.