COVID-19: Guidance on Trade Credit Policy Compliance
Amid the tragic human impact of COVID-19, businesses are feeling the economic consequences of the pandemic. Companies in the UK must prepare to respond to and recover from the impact to their people, operations, and business as any delay could bring significant consequences.
During this challenging time, many companies are seeking more information about their credit insurance, particularly around policy compliance.
Re-examining how a credit insurance policy works will help companies to understand how and when their policy may be triggered.
Credit insurance policies protect insureds from non-payment by customers due to defined insured events or perils. These are typically insolvency, protracted default, or default. Some policies also cover defined political risks.
All credit insurance policies have late-payment triggers, which, if exceeded, insureds must report to their insurers. Depending on the insurer, these are typically called "maximum extension periods", "extension periods", "stop shipment clauses", "time limits for notification", or "state of default". These extension periods (to use a generic term) allow a period beyond the due date for customers to pay, before an account becomes reportable and must be put on stop.
Depending on the specific policy wording, date triggers can be the start of formal collections action undertaken by either the credit insurer or the insured themselves. Importantly, all insureds have a duty to minimise loss if a customer encounters difficulties.
In addition to these time-driven triggers, insurance policies place a duty to provide adverse information, such as cash-flow difficulties or operational challenges. This may require a company to stop supplies and report to its insurer, just as if the extension period under the policy was breached.
There may be significant upturn in companies’ customers advising of their inability to pay debts, as and when they become due. More customers are also likely to request assistance, such as longer payment terms, repayment proposals, or return of stock they cannot sell.
In these unprecedented times, it is crucial for companies to familiarise themselves with their policy terms and conditions, and ensure they adhere to them. Marsh JLT Specialty will assist in providing specific guidance on this.
Companies face difficult circumstances, and may feel caught between supporting their customer base and ensuring they do not prejudice credit insurance cover.
Companies should continue to follow their policy terms and conditions. We encourage you to speak to your usual Marsh JLT Specialty client executive or client advisor, who will assist and guide you. This may mean discussing circumstances with the insurer; insurers currently indicate they will review each situation on a case-by-case basis.
Companies are also asking how insurers will respond to claims under their credit insurance policy, if customers are unable to pay – citing COVID-19’s impact. Credit insurers will likely respond to legitimate claims made for a loss event insured under a policy (for example, insolvency, default, or protracted default) from companies who are policy-compliant. In our experience, credit insurers pay valid claims.
- Ensure you are familiar with your responsibilities under your specific policy – your usual Marsh JLT Specialty contacts can assist.
- Ensure you adhere to your policy terms and conditions, to not jeopardise your cover.
- Speak to your usual Marsh JLT Specialty contacts if presented with a challenging situation–they will help guide you through the next steps in the process.
Marsh JLT Specialty is in the process of communicating to each client the precise reporting requirements under their policies, in the light of recent adjustments and tolerance introduced by credit insurers in recent days.