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Credit Insurance: Should I do it?
By Tessa Payne, Managing Director, FGI Worldwide
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Sami Altaher, executive director of FGI, recently moderated a panel for the Commercial Finance Association titled: “Credit Insurance: Should I do It?”  The focus of this panel was to shed light on credit insurance, an often-misunderstood product. Joining him on the panel were Larry Jasper from JPMorgan, Craig White from Euler Hermes and Chantal Wittman from MB Financial.

Altaher kicked off the panel by discussing some industry trends from the past year, primarily focusing on the increasing number of middle-market companies looking to grow internationally. He noted that due to this trend, the number of deals with a foreign receivable component has been steadily increasing.

Wittman agreed, stating that she has been seeing a similar trend at MB Financial, both for middle-market and larger clients.  This trend has prompted a need for increasingly sophisticated solutions to support their clients’ international growth and, to this end, the bank has been exploring new ways to leverage credit insurance.

Jasper emphasized that when faced with making a decision to use credit insurance as a tool, he always asks the following questions: “Does it take risk off the table? Does it mitigate the risk that I’m taking on lending to those receivables?” He also pointed out that the aspect of monitoring policies, which is a key element for managing credit insurance successfully, sometimes scares institutions away from using credit insurance.

White followed up by noting that, in some cases, the monitoring of the policy can be included in what you are purchasing.  He stressed the importance of conducting a comprehensive due diligence prior to purchasing credit insurance, so that you have a thorough understanding of what the policy includes.

The conversation then turned to how to handle the costs associated with monitoring policies – whether through the carrier or in-house. Wittman explained that, at the present, banks were not charging these costs back to clients, but that this was something that would – and should – change in the future, as credit insurance is more widely adopted.  

Altaher added that, due to its very specific ongoing monitoring requirements, more and more insurance carriers are integrating with third-party software providers for what he refers to as “macro” monitoring, covering the broader history of claims.  “The industry right now, we’re going through a rewrite,” he noted.  Due to advances in technology, lenders have access to more information than ever before, empowering them to make better informed decisions with regards to this product’s ability to aid them in deals with a foreign receivable component.

As the audience raised several questions regarding what credit insurance does and does not cover, Altaher clarified that credit insurance is not a cure-all for foreign lending. The risk that credit insurance is meant to mitigate is that with regards to foreign debtors, and the local or foreign debtors of a foreign subsidiary. He also stressed that gaining a thorough understanding of what a policy covers prior to purchasing it is crucial, and noted that, “policy language is becoming increasingly sophisticated, making it ever more important that lenders fully comprehend their policies.” Chantal added that working with the right partner can make all the difference.  Not only can the right broker help you find the policy that is right for you, it can also ensure it is monitored properly.

Towards the end of the panel, Altaher asked the panelists where they see the future of credit insurance going, to which White responded, “I believe in this country we’re going to find it more and more commonplace.” Jasper agreed, adding that the “future is going to rely on two things: education and data.” Wittman followed noting that credit insurance is here to stay, making it essential for lenders to learn more about it, both the pros and cons.

 

 

 

 

 

 

 

About Tessa Payne

Tessa Payne serves as Managing Director at FGI, a global leader in commercial finance. In her current position she is responsible for overseeing business development initiatives across multiple FGI verticals throughout North America.  She is also responsible for spearheading business strategy planning, implementation of new product offerings, partnership programs and content development. 

Prior to joining FGI, she worked at Talon Merchant Capital as business development manager. There she was responsible for originating inventory disposition opportunities such as liquidations as well as forming strategic relationships with major consumer product brands and companies to source obsolete inventory for the secondary market. 

Ms. Payne has served on the TMA Women’s Committee, CFA Women’s & Golf Committee, ACG Social Committee as well as the Emerging Leaders Board for the nonprofit, Canine Companions for Independence and frequently speaks at leading industry events such as the CFA’s Annual Convention.  

Ms. Payne is a graduate of University of Wisconsin. She was born in Chicago where she currently resides with her husband and three-year old son.