When the insurance company cuts limits: how software can provide support.
As a result of the corona crisis and the reintroduction of the obligation to register insolvency at the end of 2020 the credit insurer Euler Hermes expects a cumulative rise in insolvencies of 12% up to the end of 2021*. The current lockdown is exacerbating the situation further, so that a veritable wave of bankruptcies is to be expected. Almost every company will need to assume that its customers are affected. The question is not whether, but how many of one's own customers will get into payment difficulties.
In order to protect themselves against the risk of default, more and more companies in Germany are making use of trade credit insurance (TCI). The insurance limits are often an important component in determining the credit limits for customers. The insurance company has the right to reduce a limit as soon as it has insufficient or negative information available about the customer, for example that there is a threat of insolvency, payment difficulties or, as is currently often the case, that the company is in a particular industry or region.
The protective shield provided by the German government makes it possible for the credit insurance companies to maintain their cover agreements even in the crisis. At the end of 2020 it was extended until 30th June 2021. This does not, however, mean that individual limits will not be reduced or cancelled - obviously risky business dealings do not help either the company being insured or the credit insurance company. In such cases limit reductions and cancellations will also be necessary and will make sense even before 30th June 2021.
Flow of information in real time
If a limit is cut or even cancelled by the credit insurer, the company must react. The first thing that is important is that the company finds out about the change without delay - meaning not only when the next order is on the table, but immediately: there could still be unfulfilled orders from the customer and it will be necessary to decide whether these goods should be produced and/or delivered, and whether the company wishes to take on the risk of default itself.
Companies that have an appropriate software solution with interfaces to their credit insurance companies in operation will be informed immediately about changes to limits. They not only receive a message about the change proactively, in the best case they receive a task with the corresponding workflow. This makes it possible to ensure that the limit reduction is noticed, checked and action is taken within the framework of the company's own credit policy. In times of crisis and depending on the amount of the unpaid positions it is often critical to the future existence of the company that measures such as stopping production or blocking deliveries are taken quickly.
Objection at the press of a button
The reduction or cancellation of a limit does not always have to be accepted. It is quite possible that a change to a limit made by the credit insurance company can be challenged justifiably. This can be the case, for example, when the insurance company has changed the limit due to insufficient information about the customer to be insured. Here, one's own internal payment records for this customer, for example, may help to keep the limit in place. There are generally numerous other key figures that credit management software can use to produce individual ratings for a customer. Any of these key figures could provide arguments for challenging a change to a limit.
Companies that have holistic, integrated credit management software in operation can protest against limit reductions in such cases at the push of a button. The argumentation for the objection is generated automatically and, if desired, can be sent to the credit insurer digitally as an e-mail attachment in the company's corporate design. This process can even be automated to the extent that a review is always carried out as soon as a limit modification takes place - without it having to be started manually.