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Frequently Asked Questions
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Why is
credit insurance important for companies that sell
on credit terms?
Any company that offers credit terms to its customers
runs a risk of incurring bad debts. The customer
may become insolvent or delay payment due to liquidity
problems, and thus affect the financial health of
the company. Monies due from customers or trade
debts are the principal cash flow asset and as such
it merits full protection.
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What
does credit insurance cover?
BAGIC provides credit insurance against non payment
of approved trade debts as a result of insolvency
of buyers or protracted default i.e debts well past
the due date
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Does
it also provide protection against non payment from
overseas customers?
Yes; our cover extends to non payment of debts from
customers both in the domestic and export markets.
In the export markets, cover is also available,
as an option, on non payment due to political risks
such as currency inconvertibility, war and civil
disorder etc.
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What
are the principal reasons for credit insuring trade
receivables?
There are a host of reasons: bad debt mitigation
and balance sheet protection, securing bank financing
on more favourable terms as bank is assured of repayment
from us, entering safely into new markets as we
provide the information and underwrite the credit
risk on new customers, more disciplined approach
to credit management, debt collection on overdue
accounts, political risk cover for overseas based
customers who are also covered for commercial credit
risks.
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Can I
insure certain selected customers only rather the
entire portfolio?
No. Credit insurance applies to insurable whole
turnover only which also means whole turnover of
a single product or division. Selected or specific
customers cannot be insured. Experience shows that
customers that companies least suspect tend to delay
payment or become insolvent. We provide cover against
unexpected losses and a balanced portfolio of buyer
risks is essential.
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What
is the basic information I need to supply for credit
insurance?
Essentially we request you to fill a simple Proposal
Form which includes description of your business
activity, number of customers and portfolio concentration,
bad debt losses during the last 3 years if any,
names of your top five to ten customers and their
existing credit limits and a brief description of
your credit management and debt collection systems
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What is
the maximum credit risk indemnity do you provide
on my customers?
We will provide maximum indemnity of up to 90% of
undisputed trade debts approved by us. If we reduce
the limit on a buyer, your exisiting approved limit
on which you made shipments, remains unaffected.
The change will only affect future deliveries.
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What value
added services can I expect in credit insurance
from BAGIC?
We provide worldwide collection of overdue debts
free of charge for the insured percentage portion
where the debts are underwritten by us. Other services
include on-line customer credit limit status and
information on existing and new customers in the
domestic and export markets.
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When do
I submit a claim and how soon can I expect the claim
to be paid?
There is a set procedure for this as in any insurance
business. In case of a formal insolvency, we need
only a short period to assess the facts and normally
the claim is paid in within 30 days.
For protracted default, the
procedure is longer. For accounts still unpaid
by due date, we agree an automatic extension period.
If the amount remains unpaid at the end of the
extension period, we give you 30 days to notify
us of this overdue. Future cover is cancelled
and we enter into a Waiting Period of up to 180
days to take action to recover the overdue debt
with your cooperation. At the end of this period,
any balance that remains unpaid is a valid basis
for a claim under Protracted Default. Following
a claim assessment and after submission of full
claims documents, we will pay the claim in 30
days.
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How much
does credit insurance cost?
Premium rate - which applies as a % rate to the
insured turnover - depends on a number of factors:
volume of insured turnover, quality of the buyers,
quality of your credit management systems, historical
bad debts losses, sectors and countries covered,
self retention (90% indemnity or less), deductibles
such as Each and Every First Loss, level of non
qualifying losses, Aggregate First Loss etc.
- How can I keep the rate as
low as possible?
This depends on the quality of your credit management
systems and your track record to date, when it comes
to collecting monies from your customers. You can
supplement this with the above deductibles and a lower
level of indemnity sought from us. The sum total of
these factors forms a sound basis for keeping the
rate low.
- Your premium rate is too
high compared to other insurance providers
If our rates fall short of our competitors, we should
compare the: indemnity, country coverage, deductibles
and most important of all credit limits. The premium
rate is just an indication of the price, but ultimately
you are more interested in credit limits and risk
assessment. At the end of the day, it is also the
quality and value-added services you get from BAGIC.
We should take a closer look at coverage and risk
assessment before comparing prices.
Ensure that when you are making comparisons, the comparison
is done like for like. We are very competitive when
we quote for a portfolio familiar to us. However,
if we can understand your business and needs better,
it is probable that we can structure our offer in
a way that means you have a better balance between
the cover and the premium rate.
Service is key in our industry and that is intangible.
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Do credit
limits underwritten or approved by Bajaj Allianz
always remain in place?
No. In the first place, under the policy you are
required to apply for a new credit limit if you
wish to ship a higher amount than the credit limit
in force. (Otherwise you will be overtrading and
not covered for the excess.) Secondly, as you will
regularly send us your overdues listings, and additionally
as we maintain up to date information on companies
on our global database, we may revise the credit
limit in the light of the latest information. All
these factors, when taken into account, mean that
credit limits on buyers can change but we always
keep you in the picture. Such changes only affect
future shipments.
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Do you
underwrite credit limit on every customer or buyer
I deal with?
Not necessarily. First of all, we only provide credit
risk cover on incorporated and trading entities
where financial and related information such as
payment track record is available to enable us to
make a financial evaluation. Sales to consumers
or individuals, associated companies and government
or public sectors are excluded.
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What
type trade risks are NOT covered?
We do not cover risk on a single buyer risk, loans,
guarantees, bonds, L/Cs, performance and currency
exchange risk, lease or financial payments or project
finance. Essentially we provide cover for short
term B2B trade debts where there is an underlying
arm's length trading transaction involving goods
shipped or services rendered.
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We never
had a debt that impacted our business
Prevention is better than cure. If your debt had
never impacted your business, it does not cost much
to protect yourself against catastrophic losses.
Should it have impacted, and if you were to buy
credit insurance then the premium will be much higher.
Even though you may have a clean loss history it
is no guarantee that losses could not be made in
the future. Of course a clean loss history will
be reflected in the advantageous premium rate we
would offer.
- Our portfolio is well-balanced
and we currently foresee no risk
If there is an impending risk, it will be too late
to buy credit insurance. Even with a well-balanced
portfolio you cannot predict an unexpected claim or
catastrophic loss. Unfortunately unforeseen catastrophes
do exist eg. fraud of a manager that causes a company
to go insolvent, or secondary insolvency, which means
the insolvency of a major buyer of your client that
affects your client's business. You can never be absolutely
sure that you have all the information.
When your portfolio is well-balanced this is exactly
the best time to have your receivables insured as
this will produce an attractive premium.
- We understand our industry
well and can predict the upturns and downturns
When one of your clients goes insolvent, it will not
be classified as either an industry upturn or downturn.
We might be able to predict insolvency by the continual
assessment of the creditworthiness of the buyer. This
investment will take a lot of your time. We, as credit
insurers, employ specialised staffs who are dedicated
to look at risks such as this.
- We have enough reserves to
overcome losses. With the premium we are paying, we
can use that as reserves for our bad debt losses
The reserves put aside are estimated to cover your
losses. If an unexpected huge bad debt occurs, your
reserves will not be able to protect you. With credit
insurance, we can tailor a policy with some deductibles
and you can use your reserves to cover these deductibles
(first losses). Any huge bad debt will be paid by
us if it exceeds this amount.
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What
is the next step to consider credit insurance ?
Please click Free Quotation on the Quick Links on
this website and fill in the attached Proposal Form.
We will be pleased to submit a non binding indication
quotation to you.
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