Solution: Excess of Loss (XoL)
Ideal for businesses that have strong internal credit management and want protection only against exceptional or catastrophic losses on their buyer portfolio that exceed a predetermined threshold. Unlike traditional policies that cover individual customer defaults, this policy focuses on aggregate losses across the entire portfolio during a policy period. This structure allows companies to retain a certain level of credit risk on their books while transferring excess risk to the insurer.
Main Characteristics:
Subject of Coverage: All or most receivables, but only losses above a defined aggregate threshold are covered.
Losses Covered: Insolvency, protracted payment after a pre-agreed waiting period, and other credit-related events.
Risk Management: Insurer provides portfolio monitoring and support for the larger exposures, while you maintain primary credit control for the part of the buyer portfolio that falls below the XoL threshold.
Additional Coverage: Collection costs, consignment stock, production risk, and more.
Self-Retention: Typically between 5% and 10%.
Why Choose Excess of Loss?
Significant Risk Transfer: Protect against the potential impact of catastrophic loss, while still maintaining credit risk management of your smaller accounts.
Cash Flow Stability: Secure predictable cash flows through insurer reimbursement for bad debt losses.
Strategic Growth: Safely maintain or expand high-value relationships without fear of non-payment.
Financing Advantage: Secure your receivables and improve access to bank financing.
Process Improvement: Implementing insurer-driven credit risk standards helps standardise and enhance internal procedures.