Excess of Loss cover often appeals to larger businesses.
Businesses that are happy to retain a higher level of self insurance, but who in turn seek protection against particularly large one off bad debts or a series of bad debts, that exceed their normal experience, will be interested in this approach.
This is an insurer “hands off” partnership approach to credit insurance where the policyholder’s credit control practices form an integral part of the policy. Policyholder and insurer will work closely to agree major credit limits, where often more than financial information play a part in the assessment, and situations where end customers need support in times of difficulty.
In exchange for a meaningful level of self insurance, the policyholder is empowered with a high level of discretion to run their affairs, referring to insurers only for the largest of insured limit approvals; a “slice” of insurance cover is bought to protect against the impact of exceptional bad debt losses experienced in a 12 month period.
This is more “balance sheet” insurance and whilst some whole turnover insurers can offer some of the unique features of Excess of loss cover, it is a specialist area of the market. Insurers that occupy this space are not whole turnover insurers and have some unique offerings that cannot be matched elsewhere.
A minimum period of 12 months, but longer terms can be negotiated.
Insolvency (link) and default (link) cover attaching to insurable sales (link to below) in the policy period.
All sales less VAT, sales to local authority, nationalised undertakings, associated or group companies.
By negotiation, sales to undoubted risks can often be excluded from cover to reduce the slice of cover (link) purchased and, thereby, cost of cover provided insurers are left with a fair balance of risk.
Annual aggregate deductible
The policyholder agrees to retain a level of bad debts in the policy period, the level not normally being less than their usual level of attritional bad debts in the course of their business. Small individual losses are excluded by a very small excess, focusing the insurance cover on medium size and larger bad debts.
A slice of cover
The insurer provides a “slice” of insurance cover to cover further bad debt losses once the level of bad debts incurred exceeds those retained via the annual aggregate deductible.
Not directly linked to insurable turnover, the cost of this type of policy is linked more directly to the level of the annual deductible and the amount/slice of cover bought from the insurers. Premiums are normally payable in advance at the commencement of the policy.
Credit control procedures
The credit management procedures of the policyholder form an integral part of the policy.
High discretionary credit limit
Excess of loss policies mean discretionary limits are high, and the policyholder is expected to use their established credit control procedures to run their business with minimal intervention by insurers.
Non-cacellable insurer credit limits
Insurers must agree insured credit limits for values in excess of the high discretionary limit, and these limits are non cancellable by the insurer for the period of the policy. Unlike the “whole turnover” market an Excess of Loss insurer will write limits on a group basis that will cover all subsidiaries.