Adroit Market Research - Industry Insights

Credit insurance can be described as financial life guard in the time of certain catastrophes occurrence. It is a form of insurance plan bought by a business that pays off one or more existing debts at the time of crisis.  It is also often promoted as credit card for businesses, with the periodic cost charging a small proportion of the card's due balance. Credit insurance policies are high-priced as compared to their remunerations plus are overburdened with fine print that can make the claim process difficult. Thus, comparison among several options is very much essential. This case paper aims at providing a detailed analysis about the importance of the credit insurance for busine

Credit insurance can be described as financial life guard in the time of certain catastrophes occurrence. It is a form of insurance plan bought by a business that pays off one or more existing debts at the time of crisis.  It is also often promoted as credit card for businesses, with the periodic cost charging a small proportion of the card's due balance. Credit insurance policies are high-priced as compared to their remunerations plus are overburdened with fine print that can make the claim process difficult. Thus, comparison among several options is very much essential. This case paper aims at providing a detailed analysis about the importance of the credit insurance for businesses.

Wingate Electrical is a family owned business that offers mechanical, electrical, security as well as communications services to the customers in energy, construction, railway and air transport segments, from around ten operative centers across the United Kingdom. Besides, its deals are generally large-scale & prestigious. For instance, some of its previous projects include Heathrow Terminal 3 Integrated Baggage Facility, London 2012 Olympic Park plus the massive Gwynt y Mor offshore wind farm. Therefore, for such a company protection against any type financial loss is the highest priority.  So, they decided to implement credit insurance around 2006-2007.

In addition, as per the state’s financial director, the Company has got an extensive customer base, however eventually a sizeable part of the business was dependent on about ten prominent clients. They had taken out the credit insurance to safeguard themselves from what is defined as a catastrophic disaster – the breakdown of one of the prominent clients.

Moreover, around 2007 the global economic recession was on the horizon, thus the fear of catastrophe was extremely high due that can be said as the major driver behind the company buying the credit insurance. Furthermore, up till that time, there had been a supposition that several governments might bail out the big organizations since they were too great to fail. However, all this was altered with the breakdown of one of the biggest financial services organization across the globe- Lehman Brothers.

Nevertheless, after observing the previous recession that also reminded about the instability of the markets along with the extensive effect of a hasty business letdown, for instance, the tremor collapse of construction as well as facilities management service provider Carillion. The company has now got the clear ideas about the importance of adding credit insurance policy in their agenda.

How does credit insurance work?

Ever since a decade ago when the company had took out the credit insurance, they could analyze how helpful it was while spotting themselves at several claim-making situation. On every occasion, devoid of exception, the circumstances had ascended on the account of a business catastrophe.

However, each and every claim were different in terms of size & complexity, though the recent one had been undoubtedly the major, at around c£170,000. This major claim that was the result of a client’s collapse and was relatively complicated. It also roofed outstanding balances on quite a number of agreements, unsettled custodies, balances in dispute as well as a considerable credit limit that were removed by the credit insurers just a few months before the crisis.

The situation was presented to their advisor who had directed them for compiling a schedule of losses and then reach out the insurer to submit the claim. Thus, the parties were able to keep their case in front of the insurer directly so that they get well aware about the incident. Besides, they could successfully describe their necessities in a sequence in order to get into at an agreeable conclusion. Then the claim was give in to with a rightful degree of inevitability for its success. This particular methodology proved out to be irreplaceable, since the claim was accepted within the spell of 4weeks and was paid in next 2 weeks, resulting in the liquidation of the Wingate Electrical Plc

Credit insurance: The conclusion

Basically, credit insurance not nee product or it is alike several other insurance product, that is not been used by many, however it offers security at certain level at the time of crisis.

Credit insurance is considered as an added instrument that possibly will kick-in at the time of catastrophe happenings.  In simple terms, budgeting a credit insurance policy is far better than balancing bad debts through bankruptcy.

Moreover, credit insurance policy has also headed the company to asses as well as simplify its several internal processes and also supports it to focus over the customers that are more likely to get into financial problems. This allows the business for avoiding any bad debts exposure and also enables in achieving a sustainable rise in revenue.  Nowadays, Wingate Electrical Plc follows a diffident rule of credit testing all the new customers in order to understand the risk of constricting with them.   

In the long run, credit insurance plays a vital role for every single business while dealing with any kind of financial emergency. Thus, it is advisable for all the businesses to purchase the credit insurance for their business, because in the absence of credit insurance policy business will be equal a gamble of their investments.