Widely used by European and American companies, Credit Insurance is still little known to Brazilian companies. According to data from Fenseg, less than one thousand Brazilian companies use this insurance in the country.
One of the main reasons for the low penetration of this type of insurance in Brazil, is the fact that companies consider it as an additional financial cost, rather than a management tool for the accounts receivable sector with several benefits, of which the main are:
- Monitoring of the portfolio;
- Safe sales expansion;
- Management of debt collection from defaulting customers;
- Indemnification, if debt collection is not successful.
Anyway, how much does it cost the company to purchase Credit Insurance?
According to FenSeg, generally speaking, the policy costs four to five times less than the rate charged by banks or card companies to advance receivables to store owners, for example.
The Cost of Domestic Credit Insurance
For placement of Domestic Credit Insurance, the premium is usually calculated based on the whole customer portfolio; the financed sales amount; the commercial, financial and default histories; the field of activity, and the credit sales estimate for a 12-month period.
One of the elements used to determine the price of the insurance (premium) is the insured’s annual sales. The rate formed on the basis of a credit risk evaluation is applied to the mentioned amount.
The Cost of Export Credit Insurance
Domestic Credit Insurance and Export Credit Insurance are very similar, the only difference is that Export Credit Insurance, in addition to the aforementioned risks, also covers political risks or acts of war that prevent fulfilment of the contract.
The Role of the Insurance Broker
The level of complexity and detail of this type of insurance indicates the need to obtain guidance from an Insurance Broker. It is the broker who can recommend the most adequate cover for each company, through an analysis of the risks, based on three factors:
- The Insured’s economic-financial situation;
- The average economic-financial situation of the debtors;
- Current situation of the Insured’s field of activity.
Once this information is to hand, the Broker will seek the best market conditions and rates for your company.