Per-debtor trade credit insurance – it’s a delicate balancing act


The game of Jenga became popular in the 1980s. It starts with a tower of 54 blocks, which players remove one at a time and place it on top of the tower. It becomes taller and more unstable until it eventually collapses. If you have played the game you will understand the principle: removing one block might cause nothing but a wobble. But eventually you have to start picking your blocks really carefully to avoid bringing the tower down.

Now imagine a Jenga tower as a business, and the blocks as the company’s debtors. If Debtor A defaults, it could cause a bit of a wobble. If Debtor B defaults, it could cause some instability. But if Debtor C fails to settle his obligation, it could bring the entire business crashing down.

“Business owners know the strategic impact that each of their debtors has on their operation,” says Hollard Trade Credit MD Gareth Joubert. “They know which risks are more critical and which ones they can afford to pay less attention to. But when it comes to traditional trade credit insurance, they have no choice in deciding which of their risks to underwrite.”

Until now…

Hollard has introduced a trade credit product that allows clients to select which debtors to insure and which to exclude. By introducing a rigorous credit management process, in partnership with Debtsource, Hollard is able to rate each debtor’s risk individually and charge a premium per debtor, rather than rate the entire book as a single risk.

“This has massive benefits for the client as they get more control over their risks and their premiums,” explains Joubert. “They choose which debtors to insure and set their own limits. The follow-on benefit to this is that no punitive premiums are charged after a claim as the remaining risks are not impacted.”

The Hollard Trade Credit product has numerous other benefits. Here are a few of them:

  • There’s no extended waiting period. Hollard pays as soon as a claim is triggered – either by acknowledgement of debt, court order or business rescue resolution. This provides much needed financial relief to the client as soon as they need it
  • Debtsource conducts a complete credit profile on each debtor and provides an ongoing, tailored credit management service. This includes disputed debtor support and early notification of problem debtors
  • The insured portion is always proportionate to the insured limit. This means that claims are settled in this proportion and recoveries are allocated in this very same proportion
  • By insuring on a limit basis, Hollard has done away with premium declarations and you are not penalised for trading over your limit
  • There are no additional fees, franchise losses, minimum deductibles, minimum claim values or maximum annual losses

“By creating a holistic credit management/insurance approach we ensure that all risks are appropriately managed, resulting in peace of mind for the client,” says Joubert.

One of the questions that comes up regularly is around anti-selection – giving clients the opportunity to include only their “problem children”.

“We don’t guarantee that we’ll take on every risk,” says Joubert. “Obviously debtors with C or D credit ratings will attract higher premiums, and we wouldn’t consider taking on any E-rated risks.

“We encourage clients to think long and hard about extending terms to high-risk clients. After all, there’s no point making sales if you’re not going to generate income.”