It is a dilemma for many an entrepreneur: should you insure all your debtors or only the high-risk ones? For an entrepreneur, it is often clear which customer is more likely to have an unpaid invoice. Therefore, it sounds logical to insure only those high-risk customers. The experts at CreditDevice explain why that is not wise.
If there is one insurance policy that you can go either way with, it is credit insurance. That makes it a very different type of insurance than corporate liability insurance or legal expenses insurance. Those are much more static; you take them out and they can remain unchanged for years. With credit insurance, there are also different forms, types and types.
Single versus all debtors
One of the most important questions is which debtor or debtors you insure. There are roughly two options:
- With a revenue policy, you insure all debtors. By the way, this type of insurance offers a variety of flavors, depending on the type of business and needs of the organization.
- A single risk policy allows you to insure one particular risk.
With a single risk policy, for example, you can insure one particular debtor. Or a few. Such insurance is therefore also called a debtor policy. But you can also insure debtors from one particular country. Even a single transaction insurance is possible, for example, when you receive a large amount of money from one customer.
Here's the catch
That sounds interesting and attractive, but there’s a catch. “Compared to a turnover policy where all customers are insured, single-risk insurance is relatively expensive,” says Hans-Peter Vloemans, Managing Director at CreditDevice. Sales manager Sian Houwaart also advises his clients against the single-risk policy. “I wouldn’t,” he explains, “because the risk is not well spread.”
The principle of insurance in 1 minute
It’s about spreading risk. For the relationship between risk and premium, we need to dive a little further into the theory behind insurance. But don’t worry, it won’t be tough.
Why you actually have a dental subscription
It is precisely for this reason that there is more and more discussion about dental insurance. After all, it is not a question of whether you go to the dentist; for most Dutch people, the visit twice a year is a given. A dental insurance is then actually more like a dental subscription.
It works no differently with credit insurers; they too want to spread risks. “With single risk policies, the risk for the insurer is high,” Vloemans explains. Houwaart: “If the probability is higher, insurers have to factor that in. “Resulting in a higher premium for you as a business owner.”
Moreover, according to Vloemans, it is a misconception that new customers are riskier. “Statistically, bankruptcies are more common with existing customers you have been doing business with for years than with new, uncertain customers.”
Here's how to keep the premium low
The most important knob to turn if you want to keep your premium low: spread risks. “So by insuring all your debtors, because there are also healthy debtors among them,” says Vloemans. All debtors means your entire turnover. Houwaart: “That generally makes the turnover policy the best credit insurance.”
For customized advice, business owners can contact specialty brokers or the credit insurer itself. To make managing a credit insurance policy easier, CreditDevice has developed the PolicyManager. Would you like to know more about this? Contact us now with no obligation.
