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Published online by Cambridge University Press: 18 January 2018
Before the prospect decides to accept the proposed conditions for cover, negotiations may focus on several aspects of a policy: general provisions, credit limits, specific conditions and, of course, the premium rate. Every insurer has proprietary pricing tools to calculate a premium rate but some of the common pricing building blocks are mentioned in this chapter.
When a prospect applies for a credit insurance policy, the insurer knows which parameters to take into account for the premium rate he will offer.
- The subjective risk
The prospect gives details of its company and trade sector, the usual credit terms agreed upon, credit management procedures, the current outstanding receivables and the losses sustained in the past. The insurer can check the creditworthiness of the prospect and may decide whether to start a business relation or decline to make any offer. When the prospect is a member of a trade sector association and maintains a credit management policy aimed at the prevention of losses, this may be a reason for the insurer to include a premium discount in the calculation of the premium rate.
- The objective risk
Details about the portfolio of buyers will determine the premium rate to a great extent. The following elements may play a role:
• the volume of turnover;
• the spread of risks;
• the trade sector of the buyers;
• the creditworthiness of the buyers;
• the possible inclusion of cover of political risks;
• the buyers’ domicile(s) and respective sovereign creditworthiness;
• the possible inclusion of the pre-credit risk and the average/ maximum delivery period;
• a monthly declaration of whole turnover or of outstanding receivables
• the credit term agreed upon with the buyers;
• the effective credit term;
• the loss history;
• the percentage of cover applied for;
• the possible inclusion of a bonus/malus arrangement;
• the inclusion of deductibles such as a non-qualifying loss, an each and every first loss, a threshold or an aggregate first loss.
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