Managing Insurer Credit Limit Cancellations within Asset Based Lending Facilities
Manage insurer credit limit cuts by enforcing immediate credit holds, shifting uninsurable buyers to letters of credit, and adjusting ABL borrowing base eligibility.
Top up Credit Insurance Policy
Meaning
Supplemental insurance layers provide additional coverage when the primary insurer has reached its maximum exposure. A top up credit insurance policy sits above the base limit to allow a supplier to ship more goods to a high volume customer. This secondary layer is often provided by a different insurer with a higher appetite for specific risks.
Coverage Extension
Suppliers use this extra capacity to support sales that exceed the limits of their main policy. In a top up credit insurance policy, the terms usually mirror those of the primary coverage but at a different price point. This extension is necessary for growing accounts where the primary insurer is unable to increase their stake.
Risk Tiering
Underwriters analyze the same debtor but apply a different set of criteria for the additional amount. Because a top up credit insurance policy only pays out after the primary limit is exhausted, the risk of a claim is technically lower for the second insurer. This tiering allows for a more flexible approach to credit management.
Aggregate Limit
Total protection is the sum of the primary and the supplemental layers. A top up credit insurance policy must be managed carefully to ensure there are no gaps in the coverage window. If the primary insurer reduces their limit, the top up layer might also be affected depending on the wording of the contract.
This structure requires constant communication between the two insurance providers and the policyholder.