The Link to Financing
The co-operation between a commercial bank and a credit insurance company has developed quite naturally over the years in Western Europe. For us, Banks are important intermediaries who can recommend credit insurance to their corporate clients. For the Bank, credit insurance is a convenient way to maximise the quality of the collateral they get for their credit lines, or to take over the receivables without having to bear the credit risk.
Starting point: The Loss Payee Clause
A Loss Payee clause is an addition to a credit insurance contract, through which the insured company (policyholder) instructs the insurance company to pay out any claim directly to the bank.
The background is usually as follows:
The company asks for credit and offers its account receivables as security.
The quality of the receivables has to be checked. This can best be achieved by taking credit insurance.
If a buyer defaults, the missing inflow is replaced by the claim that is paid out by the credit insurance company.
The Bank as Joint insured
The Bank can also be added as joint insured to the policy. This doesn't create any obligations to the bank, but it gives important rights:
Right to be informed when the policyholder does not pay his insurance premium (as he then loses all rights for claims being paid out). The bank can then decide to pay the premium itself in order to preserve its rights.
Right to be informed of any credit decision. The bank can then match the credit decisions with the cover that has been granted by the insurance company.
Right to be informed of any overdue notifications received.
Right to introduce a claim in lieu of the policyholder. This is important when the policyholder himself becomes insolvent or is unable to manage his policy properly
The Bank as Policyholder
Banks can purchase invoices from their corporate clients and insure the credit risk with us. This can be done either through a factoring agreement, where the bank takes over the complete credit management from his client.
Banks can also purchase invoices but ask their client to continue to manage the credit risk.
In both cases banks are more interested in the financing part than in the risk transfer and can ask us to insure this risk. We have special policy wordings to handle this specific situation and we will be happy to explain how we work.
Euler Hermes Group
