In sectors such as energy, where supply chains are vulnerable to oil price moves and margins can be thin, affordable trade credit insurance is considered essential. Insurers are however required to regularly review credit limits on their clients’ customers and, in the case of traditional trade credit policies, may from time to time reduce or remove those limits to reflect changing risk in the wider environment. One fuel distributor purchased AIG’s Non-Cancellable Trade Credit Policy this summer following a string of limit reductions by its previous trade credit insurance provider. Having used traditional trade credit insurance for 20 years, this client believes limit changes were starting to disrupt the firm’s trading relationships with key buyers as well as creating additional work for their credit control team.
In a fiercely competitive industry where winning a customer can take as long as a year, having to tell a new customer sometimes after only a month that their credit facility had been cut was becoming frustrating, according to the company’s Head of Transactional Services. “We were strongly motivated at the time to think outside the box,” he says. With AIG’s Non-Cancellable Trade Credit Policy, the company is now reassured that if it is given a one-year credit limit, that limit will remain in place for the entire year. This has given its sales team more freedom and confidence in their negotiations with prospective customers, resulting in a tangible uptick in sales over the past few months to some buyers, its Head of Transactional Services says. AIG’s competitive premiums were another draw, helping ensure those sales are profitable, he adds.
Because AIG’s Non-Cancellable Trade Credit Insurance involves a level of risk-sharing between AIG and the policyholder, the onus falls on policyholders themselves to carefully assess the risk of offering credit to a specific buyer and to decide whether to sell to that firm – something that the fuel distributor has found to be empowering. AIG’s Non-Cancellable Trade Credit Policy is therefore available only to firms that can demonstrate they have strong credit and risk management processes in place.
Insurance and services provided by member companies of American International Group, Inc. Coverage may not be available in all jurisdictions and is subject to actual policy language. For additional information, please visit our website at www.aig.com.