Phillip Krinker

The major myths about credit insurance

27 de Junho de 2018 Phillip Krinker 0 Comentários

Here, we propose to deconstruct some myths that are very common when talking about credit insurance, because in Brazil many people still have very limited knowledge of this product, which is widely used abroad in European countries, where it is recognized as the best ally of a company’s financial security.

Credit Insurance can reduce the number of staff in a company

Many believe that credit insurance has come to cut down jobs, whereas, in fact, it assists the work of analysts and managers of credit teams.

A company that has a specialized credit team, and sees its sales increasing, will require more employees to manage its growing client portfolio. However, if in that same scenario, its sales increase and it counts on a credit insurance program, it will not need to increase its staff, since it will be able to count on the underwriter’s specialized team.

Moreover, as an ally, it can confirm the efforts of professional staff. A clear example of this is when a credit manager analyses a doubtful debtor and forwards his/her forecast to a meeting of the company’s top executives. His/her work, by itself, does not produce much impact, and the analysis may even be ignored. With the assistance of credit insurance, such analysis can be ratified by the insurer, and the risks to which the company will be exposed, if it sells to the client in question, will be clearly shown.

Credit Insurance is not that relevant for a company whose clients do not pose the risk of default

Firstly, it is difficult to predict a non-default situation with 100% certainty, especially when we consider that the economic crisis has significantly affected companies of all sizes.

Secondly, in the case of a reasonable client portfolio, it is crystal clear that a selection will show that there are clients with high and clients with low probabilities of default.

With respect to portfolios containing few but large clients, the risk appears to be smaller, because often these consist of companies consolidated in the market, and financially stable. However, the worst risk can lie precisely there. As, in most cases, such clients represent the company’s higher profit percentages. In case of a downturn or judicial recovery request by such client, if the company does not have credit insurance, it may go into bankruptcy also.

To deconstruct other myths about Credit Insurance, see how it is being introduced in the Brazilian market, in our 2017/2018 trends report.

Deixe um comentário: