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Credit insurance, a vital safety net


In volatile economic and political landscapes, chances are high that customers become insolvent or fail to pay their trade credit debts which can have ripple effects on one’s business.

Financial protection is key in running a successful business, hence the need for credit insurance.

Credit Insurance is one of the lesser known types of insurance available in Zimbabwe today.

It is very much a business-to-business arrangement, thus credit insurance exists between supplier companies and buyer companies, including “bodies corporate”.

Diversified insurance company Credit Insurance Zimbabwe Ltd (Credsure) is one of a handful of insurance companies that offer credit management support in case of businesses experiencing financial loss.

“Many businesses are both givers and takers of trade credit and this is a major channel through which credit flows between sectors of the economy (both local and global),” said Credsure senior underwriter credit department Simbarashe Marange.

“Credit insurance provides protection against the risk of non-payment by trade debtors.  It provides compensation in cases of unexpected trade debt losses, which other insurers cannot cover.”

Credit insurance became a feature of trade around 1919 when countries such as Britain started to trade into war-torn Europe with countries that had hitherto been hostile to it.

“The function of credit insurance is primarily to protect the one asset which, after capital goods, represents the most significant investments in one’s business — the accounts receivable,” Marange said.

“Credit insurance’s primary purpose is to assist a policyholder in three areas namely, to prevent sales to companies that are likely to default, to compensate policy holders where their buyers have had a sudden change of fortune and there is a default on payment, as well as to supervise the collection of a debt when it is not yet time to claim.

“In all cases, a credit insurer acts as a silent financial partner to the policyholder and a credit limit is set for the maximum amount that can be sold to each debtor.

“Credit Insurance has a secondary purpose, which is to assist in the financing arrangements made between a policyholder and his bankers.

“A credit insurance policy can be ceded to a bank as collateral for any lending made. The net effect of credit insurance overall is that it gives peace of mind to the policyholder, its credit manager and the relevant bankers.”

Marange said export credit insurance offers protection against loss from non-payment by foreign buyers due to political, economic and commercial risks not covered by other insurance policies.

“The risks covered by an export credit insurance policy include political risks where a loss is brought about by wars, revolutions, insurrections, boycotts and strikes, among others outside Zimbabwe,” he said.

“Export credit insurance covers a loss that occurs through an act or omission of a foreign government, which either prevents the goods reaching their destination or the purchase price funds being transferred back to Zimbabwe.”

Marange said domestic credit insurance is cover given on local buyers to protect the supplier against unexpected trade debt losses, which other insurers do not cover.

He said the insured percentage for most domestic policies is 80% and for export it varies from 85% to 95% depending on the type of policy.

Credsure offers credible general insurance solutions, bonds and guarantees insurance solutions, credit insurance solutions as well as health insurance solutions.

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