Trade Credit Insurance: Overview and Market Trends

Trade credit insurance is a type of insurance that protects businesses from the risk of customers not paying their debts. This type of insurance is also known as accounts receivable insurance.

In the US, the trade credit insurance market size was estimated to be around $1.4 billion in 2020. This market size is expected to grow in the coming years due to the increasing demand for trade credit insurance.

Businesses can purchase trade credit insurance to cover their accounts receivable, which are the amounts owed to them by customers. This type of insurance can provide protection against bad debts, allowing businesses to focus on their core operations.

Trade credit insurance policies typically cover a percentage of the outstanding accounts receivable, with the percentage varying depending on the policy.

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Trade credit insurance helps businesses protect their capital and stabilize cash flow by establishing confidence in their customers' ability to repay their accounts.

It's sometimes referred to as "accounts receivable insurance", "debtor insurance", or "export credit insurance."

Trade credit insurance protects a business against its commercial customers' inability to pay for products or services.

This can happen due to bankruptcy, insolvency, or political upheaval in countries where the trade partner operates.

Trade credit insurance offers numerous benefits and advantages that can help businesses thrive. It provides protection against bad debts, which can be a significant risk for companies extending credit to customers.

Offering credit terms can attract larger buyers and open up new geographic markets. In fact, having a loss-mitigation strategy can be a necessity just to stay competitive in industries where most competitors already carry trade credit insurance.

Companies that offer greater credit limits to their buyers can generate economies of scale. This can lead to better pricing with suppliers and increased profitability.

Here are some key benefits of trade credit insurance:

Having a trade credit insurance policy can also help businesses recover their trade receivables without compromising relationships with clients. This is because the insurance provider takes care of debt collection, allowing businesses to focus on other areas.

Trade credit insurance is designed to mitigate the risk of non-payment by buyers. It's typically less than 1% of the insured sales volume, according to Meridian Finance Group.

Businesses can scale their insurance coverage to fit their budget and risk profile. This means they can choose to cover a single large or risky account, or a select number of clients.

Insurance providers assign a specific credit limit to each covered trade partner based on their financial strength. If a buyer fails to pay, the insurer will only cover losses up to that credit limit.

Some insurers offer secondary coverage that kicks in when the primary policy fails to cover the full amount of a claim. This provides an extra layer of protection for businesses.

Here's a breakdown of the typical process:

Trade credit insurance policies can be broadly categorized into two main types: all-risk policies and single-risk policies.

All-risk policies cover a wide range of risks associated with trade credit, including insolvency, non-payment, and bad debts. This type of policy provides comprehensive protection against unexpected events.

Single-risk policies, on the other hand, cover a specific transaction or customer, and are typically used for high-value or high-risk transactions. They can provide tailored coverage and flexibility.

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Top Accounts/Single-Buyer Policy protects against exposure of non-payment by a single key customer. This type of policy is available for both short and medium terms.

Sellers can use this policy to safeguard their business from the risk of non-payment by a crucial customer. This can be a huge relief for small businesses that rely heavily on a few key clients.

Accounts/Single-Buyer Policies are designed to provide peace of mind for sellers, allowing them to focus on growing their business rather than worrying about non-payment. By having this policy in place, sellers can offer competitive credit terms with confidence.

This policy is a must-have for businesses that have a significant reliance on a single customer. It's a smart move to protect your business from the risks associated with non-payment.

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Domestic and Export credit insurance provides flexible safeguards against negative impacts on account receivables, including customer default and political events. This type of insurance is designed to protect global sellers from potential losses due to unforeseen circumstances.

It's essentially a safety net that helps businesses recover from unexpected setbacks, giving them peace of mind and financial security. Comprehensive Domestic and Export Credit Insurance is a specific type that offers this protection, making it an attractive option for companies with international trade interests.

Commercial Risk Coverage is a crucial aspect of protecting your business from potential losses. Trade credit insurance can cover extended payment defaults, including late payments.

Accounts Receivable Coverage for Key Customers protects against exposures associated with specified domestic or global customers. This coverage is provided under the DECI policy form.

Comprehensive Domestic and Export Credit Insurance provides flexible safeguards against negative impacts on account receivables. It covers customer default and political events, giving you peace of mind.

Trade credit insurance can also cover bad debts arising from customer insolvency. This is a significant risk for businesses, especially when dealing with new or unknown customers.

Here are the key commercial risks covered by trade credit insurance:

By understanding these risks and taking steps to mitigate them, you can protect your business and ensure its continued success.

The global market for Trade Credit Insurance (TCI) has been growing rapidly. According to Allied Market Research, the global market for TCI reached $9.39 billion in 2019.

The economic downturn of 2020 actually accelerated the adoption of TCI, serving as a reminder of the potential for market disruption and lost receivable revenues. This growth is expected to continue, with the market projected to reach $18.14 billion by 2027.

The growth rate of the TCI market is impressive, with a compounded annual growth rate of 8.6% projected by Allied Market Research.

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The TCI market has experienced significant growth in recent years. According to a 2021 report by Allied Market Research, the global market for TCI reached $9.39 billion in 2019.

During the economic downturn of 2020, the adoption of TCI accelerated, serving as a reminder of the potential for market disruption and lost receivable revenues. This growth was likely driven by businesses seeking to mitigate risks and protect against buyer nonpayment.

The global market for TCI is expected to reach $18.14 billion by 2027, representing a compounded annual growth rate of 8.6%. This growth is a testament to the increasing importance of TCI in protecting businesses against nonpayment risks.

To put this growth into perspective, consider the following projected market values for TCI:

This growth is a clear indication of the increasing demand for TCI solutions, which are designed to protect businesses against nonpayment risks and ensure the smooth flow of trade.

For multinationals, having a solid grasp of global market trends is crucial. Trade Credit for Multinationals provides global sellers with a controlled master program that combines the advantages of local and global credit insurance.

Companies can maintain consistent protection and control in every market in which they operate. This allows them to expand their reach without worrying about financial risks.

Global sellers can use this program to ensure they're protected in every market. This gives them the confidence to take on new opportunities and grow their business.

By having a controlled master program, multinationals can simplify their credit insurance needs. This saves them time and resources that can be better spent on other areas of their business.

Trade Credit for Multinationals helps multinationals navigate the complexities of global trade. It provides them with the tools they need to succeed in every market.

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A stable market partner is crucial for any business looking to grow and thrive in today's competitive landscape. One company that stands out in this regard is AIG, which draws on decades of experience to provide sustainable solutions and market-leading claims expertise.

AIG's trade credit insurance solutions are designed to support long-term relationships with brokers and clients. This is evident in their ability to write tailored, non-cancelable limits coverage for a client's entire accounts receivable portfolio.

Their innovative credit management tools and insights are particularly valuable for mid-market to multinational clients. These tools can help businesses navigate complex credit management issues and make informed decisions.

AIG's global network spans approximately 70 countries and jurisdictions, making them a trusted partner for businesses with international operations. They also integrate seamlessly with complementary AIG domestic and multinational credit insurance solutions.

Here are some key benefits of partnering with AIG:

AIG has more than 35 years of experience in trade credit, offering unparalleled local underwriting and policy servicing capabilities.

With decades of experience, AIG provides innovative credit management tools and insights for businesses of all sizes, including middle-market businesses, large corporations, and financial institutions.

You can choose from non-cancelable limits coverage, credit management tools, and debt collection services to help you serve customers in over 70 countries.

Coface offers a range of credit insurance solutions for businesses of all sizes and industries, including EasyLiner for SMEs and very small companies, and GlobaLiner for multinational companies.

Their solutions give you peace of mind, allowing you to minimize risks and open the door to new opportunities for growth.

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You have several policy options to consider when choosing the right protection for your business. Coface offers a range of credit insurance solutions for different business sizes and industries.

For very small companies and SMEs, EasyLiner is a great option, providing all-inclusive, 100% online credit insurance. TradeLiner is another option for SMEs and mid-caps, offering a simple, flexible, and custom-built solution.

If you're a global company, GlobaLiner is the way to go, providing bespoke credit insurance and dedicated teams to support your growth. Single Risk is also available, covering political risk and payment default insurance for complex one-off or recurrent projects.

Coface's solutions can help you understand and analyze risks associated with customer payment, giving you peace of mind to develop your business. By choosing the right policy, you can minimize risks and open the door to new opportunities for growth.

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Choosing the right policy can be a daunting task, especially when it comes to trade credit insurance. AIG has over 35 years of experience in this area, making them a great option to consider.

Their unparalleled local underwriting and policy servicing capabilities set them apart from the competition. This means they can provide tailored solutions for businesses of all sizes.

AIG's innovative credit management tools and insights are a major draw for middle-market businesses, large corporations, and financial institutions. They help these clients serve customers in over 70 countries.

Their non-cancelable limits coverage is a key benefit for businesses looking for stability and security.

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AIG is a leading global insurance organization that offers a wide range of financial services, including trade credit insurance.

AIG's trade credit insurance helps businesses protect against non-payment by their customers, allowing them to focus on growth and expansion.

AIG's services are designed to help businesses mitigate risk and ensure financial stability.

Their team of experts works closely with clients to understand their unique needs and develop customized solutions.

AIG's trade credit insurance can be tailored to fit the specific requirements of each business, providing flexible coverage options and competitive pricing.

AIG's services have helped numerous businesses across various industries, including manufacturing, retail, and construction.

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Protecting your accounts receivable is crucial for maintaining a steady cash flow. Accounts Receivable Insurance is a cost-effective policy designed to mitigate risks of non-payment by key customers.

This type of insurance is particularly important for sellers of goods and services on credit. Trade Credit Insurance protects against the risk of customer non-payment due to customer insolvency, protracted default, or other unforeseen events.

Domestic, Foreign, and Global Accounts Receivable Insurance options are available to cover losses from buyer non-payment. These policies cover losses due to buyer insolvency, protracted default, or failure of the exchange authority in the buyer's country to transfer foreign currency.

Having the right insurance policy in place can give you peace of mind and financial security. It's essential to choose a policy that suits your business needs and protects your vital assets.

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Trade credit insurance (TCI) policies offer coverage for unpaid debts up to applicable limits.

The leading providers of TCI include carriers such as AIG, Zurich Insurance Group, Chubb, Coface, Allianz Trade, and Atradius.

Businesses that use TCI can more confidently extend credit to new or existing customers, secure in the knowledge they'll be paid back.

TCI can help companies grow their business without assuming undue risk.

The Export-Import Bank of the United States (EXIM) also provides credit insurance that protects foreign accounts receivable against insolvency and political risk.

Businesses insured through EXIM receive 85% to 95% of the invoice amount if the buyer fails to pay.