Most medium and large businesses can absorb a reasonable level of bad debt, but for any company, a single major catastrophe or series of failures can be devastating. Catastrophe policies are designed to protect you if the worst happens and the total policy losses breach an aggregated excess value. This value is typically £25,000, but can be much higher depending on the nature of the business.
Catastrophe premiums are lower than for Whole Turnover Policy structures because there is greater risk sharing. Premiums are usually fixed for the year, and some underwriters offer ‘fixed limit’ cover for the policy duration.
Flexibility can be built in to allow companies with sophisticated credit management systems to set the majority of their own credit limits, or responsibility can be passed to the insurer.
It is important to seek expert advice when moving to this structure as the Catastrophe underwriter will not pro-rata previous year policy first losses if the debt is spread over two years. Furthermore most policies are structured on a losses arising basis (insolvency only in policy period), so the policy termination activates an immediate liability cut-off.
To find out more, please contact our Account Management team.