The Association of British Insurers has published a statement of principles which insurers underwriting trade credit insurance should follow. The latest ABI figures reveal a 51 per cent increase in trade credit insurance claims over the past 12 months demonstrating the greater dependency of businesses on insurance cover in the current economic climate.

Trade credit insurance protects businesses against possible credit losses cause by the default or insolvency of customers. The ABI describes trade credit insurance as “a risk management tool to help companies manage and reduce the risks involved in trade credit transactions through the provision of cover on insurance risks as well as risk prevention and debt collection services”. Although credit insurance will provide an indemnity against losses incurred by companies the ABI stresses that “policyholders should act just as prudently as they would if they were uninsured”.

The statement of principles has been written to formalise the understanding between insured companies and insurers of how credit risks should be managed and what policyholders can expect from credit insurers. The statement of principles applies to all credit insurance companies underwriting cancellable limits for whole turnover class policies in the UK.

Amongst the principles are that UK “credit insurers will continue to support the UK economy to the greatest extent possible, by maintaining levels of credit insurance, insofar as consistent with prudent trade credit risk management and their obligations to all stakeholders and customers”.

Further principles include:

Fair assessment of risk - underwriting decisiona should be based upon robust underwriting analysis of the fullest financial information.

Notice of decisions - credit insurers should give as much notice as is reasonably possible to customers of a decision to stop or substantially reduce cover. An effort should be made to provide customers with explanations for why cover has been stopped or reduced.

Open communications - insurers should maintain open communications with customers in relation to decisions about levels of cover.

Co-operation with banks and other trade financiers - insurers should work in collaboration with banks and other parties to maximise the potential for a UK entity to continue to trade as a viable business.

For further information: ABI statement of principles for trade credit insurance