International commerce credit score insurer Euler Hermes trying to develop XoL market
Traditional trade credit insurance protects manufacturers, retailers and service providers from losses from non-payment of a trade debt. If a buyer does not pay (often due to bankruptcy or bankruptcy) or very late, the commercial credit insurance pays out a percentage of the outstanding claim. Commercial credit insurance can prevent bankruptcies, help companies manage credit, and even open up opportunities for business expansion.
“The value we see in it [traditional trade credit insurance] for our clients is that we help them manage their credit and we help them discover trades and grow their business with new clients around the world, “said Musters. “We are very there to support our customers and therefore see ourselves more as a credit management solution than just an insurance.
“We help our policyholders find new customers, advise them on who to do business with and set credit limits. In the event of payment difficulties, we get involved through our debt collection department to support you in collecting the claim. And if everything goes wrong, it is the insurance in the background and we pay the damage. So it is a service we provide to our customers where we help them grow their business and help them trade safely around the world. This is normal credit insurance. “
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XoL trade credit insurance differs in that it is not necessarily suitable for all companies. It is aimed at larger companies with experienced credit management teams who know their markets and the customers they deal with.
“At Euler Hermes we have a database of 80 million companies around the world that we actively monitor, but that’s not really interesting for our XoL customers because they know their business and like to manage the risks themselves,” Musters told Insurance business. “You don’t need the kind of support and assistance that our traditional commercial credit insurance customers get from us. They like to accept a certain amount of bad debts and credit losses each year and they see this as a risk to their business.
“Our XoL customers want the certainty that they will not suffer major, unexpected losses. The term XoL comes from the fact that the policies are usually structured in such a way that our customers would take the first [chunk] of the losses themselves each year as a large annual deductible on the policy, and only when the losses exceed this level does the XoL insurance intervene. So it’s more of a product that supports your credit process. “
Musters explained that XoL customers have a high level of discretion about who they trade with and what credit limits they agree with customers. They also usually take debt collection measures themselves if their customers fail to make payments. Essentially, through strong in-house credit risk management, XoL customers run the traditional commercial credit services themselves and only want insurance when something goes drastically wrong and the losses exceed their expectations.
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Euler Hermes entered the XoL market in the UK in 2012 and in America in 2013. While trade credit insurance is now very well known in Europe, it is still an up-and-coming solution in the USA and Canada.
“We have gone to great lengths over the past three or four years to grow the market, especially in the US,” said Musters. “Of course we want to increase our market share, but above all we want to enlarge the market as a whole. We estimate that in the US credit insurance market there are about 20,000 companies covered by all carriers, yet we estimate that there are 20 million companies that could buy credit insurance. So the market potential is huge.
“This is one of the reasons we are looking to develop XoL because we have many large US and Canadian uninsured companies (and many of them operate internationally) that already have these developed credit teams and credit processes in place who support this could be a XoL product. And mostly they are uninsured at the moment, that is, they are used to accepting a certain amount of losses themselves and therefore already have a tolerance and an understanding of the risk. This is where XoL comes in, and that’s why we want to grow our team and really see where it can go. “