Top-up cover: for maximum protection

John Carter, Country Manager (UK and Ireland) for Credendo – Excess and Surety, explains how top-up cover is more prevalent in the Credit Insurance market than ever before.

The Credit Insurance market in the UK and Ireland has evolved significantly in the last decade, particularly after 2008 where information flow from buyers and debtors, to suppliers and respective insurers, was dramatically increased. Whilst audited and filed accounts remain crucial, management data, forecasts, and confirmed orders are now provided to allow a better understanding of the risk and the performance of companies – not just in the UK but in export markets too. This has allowed greater understanding of the customer for companies, and a greater opportunity for insurers to manage the risks they write, monitor and react to throughout the course of an insurance year. However, as many companies choose not to share financial information outside of that available in the public domain, this can be just one factor which leads to restrictive insurance cover, as there is limited visibility on their ongoing performance.

Credendo see a competitive market in both premium and risk coverage, and whilst this represents an opportunity to attract previously uninsured business and continue to work with existing insured companies, it can also mean that ‘capacity’ plays a part in the allocation of cover. Top-up insurance is designed to help uplift restricted credit limits where there are capacity constraints, a lack of financial information or simply higher risks. Insurance is there to pay out for something unforeseen, and in our world, this is defined as the occurrence of unexpected business failures or refusal or an inability to pay but, if the required credit limits written fall short, gaps in cover are created. These gaps restrict sales and finance opportunities. A good example is an insured company who has invoice discounting in place, and the finance is not fully utilised or is not fully available (based on the lack of credit limit coverage). A zero-credit limit is, in the main, a zero for good reason – due to a poor risk – but restricted or partial credit limits can therefore benefit from top-up insurance.

Many businesses opt not to take out Credit Insurance and unfortunately all too often incur a bad debt without a policy or adequate cover in place. This can lead to a loss of profitability, force a reduction in the scale of the business (including staff) or, in the worst case, bring about the company’s ultimate demise where the knock on in their supply chain can also be significant. A primary insurer must always agree to any secondary insurer’s solution, however, if they are truly unable to write the full required levels of cover themselves (for one or more of the reasons already mentioned) then top-up cover can act as that secondary insurer solution to help support the client’s growth at home and abroad, protect them from unforeseen losses and satisfy their finance requirements and obligations at the same time.

Credit insurers must continue product evolution and whilst healthy competition should be encouraged, insurers can and should collaborate to provide more structured solutions. Perhaps the ‘one size fits all’ philosophy is changing as businesses adapt their strategies regularly to meet the demands and idiosyncrasies of their specific sectors and, more generally, the direction of the business market we all operate in. Top-up cover will become more prevalent in our market, not just in the UK but globally, as we work through these economically challenging times.

To find out more about how top-up cover can benefit your business, please call Laura Prime at CBF on 01279 722555.

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