The link to financing

 

 

The co - operation between a commercial bank and a Credit Insurance company has developed quite naturally over the years in Europe.

For  us, banks  are  important  intermediaries who can recommend Credit Insurance to their corporate clients.
 
For the bank, Credit Insurance is a convenient way to maximise the quality of the collateral they get for their credit lines, or to take over the receivables without having to bear the credit risk.
 

Starting point : The assignment clause

 
An assignment clause is an addition to a Credit Insurance contract, through which the insured company (policyholder) instructs the insurance company to pay out any claim directly to the bank.
 
The background is usually as follows :

- The company asks for credit and offers its account receivables as security
- The quality of the receivables has to be checked. This can best be achieved by imposing Credit Insurance
- If a buyer defaults, the missing inflow is replaced by the claim that is paid out by the Credit Insurance company.
 

Variations

 
There are different types of assignment clauses; the choice depends on the agreement of the company and the bank. In its simplest form the bank is entitled to benefit from any claim paid out to the policyholder. The policyholder can restrict the benefit to the losses related to receivables that have been used as collateral. In this event we require a simple rule to divide the insurance contract in two parts : one that is assigned and one that isn't.
 

The bank as joint insured

 
The bank can also be added as joint insured to the policy. This doesn't create any obligations to the bank, but it gives important rights :

- to be informed when the policyholder does not pay his insurance premium (as he then loses all rights for claims being paid out). The bank can then decide to pay the premium itself in order to preserve its rights
- to be informed of any credit decision. The bank can then match the credit decisions with the cover that has been granted by the insurance company
- to be informed of any overdue notifications received
- to introduce a claim in lieu of the policyholder. This is important when the policyholder himself becomes insolvent or is unable to manage his policy properly.
​​​​​​​​​​​​​​​​​