CCP CCP Credit Insurance & Risk Mitigation 1 — Questions and Answers
Question 1: What is the primary purpose of trade credit insurance in a B2B credit management program?
- To eliminate all credit risk from the seller's portfolio
- To protect the seller against buyer insolvency or protracted default (Correct answer)
- To replace the need for credit analysis on buyers
- To guarantee payment within 30 days of invoice
Correct answer: To protect the seller against buyer insolvency or protracted default
Trade credit insurance protects the insured seller against loss when a buyer fails to pay due to insolvency or protracted default, not to eliminate credit analysis.
Question 2: Which term describes the percentage of the invoice value NOT covered by a trade credit insurance policy?
- Deductible
- Co-insurance percentage (Correct answer)
- Retention or first loss
- Sublimit
Correct answer: Co-insurance percentage
The co-insurance percentage (often 10–20%) is the portion of the insured amount the policyholder bears, aligning their incentive to manage credit risk prudently.
Question 3: A credit manager wants coverage for a buyer that exceeds the insurer's approved credit limit. What option can the insurer offer?
- Automatic policy extension
- Discretionary credit limit (DCL) (Correct answer)
- Excess of loss cover
- Non-disclosure endorsement
Correct answer: Discretionary credit limit (DCL)
A discretionary credit limit allows the insured to extend coverage up to a set amount without prior insurer approval, subject to internal credit guidelines.
Question 4: What is 'whole turnover' coverage in trade credit insurance?
- A policy covering only the seller's top 10 accounts
- A policy that covers all or most of the seller's domestic and export receivables (Correct answer)
- Coverage limited to receivables over 90 days past due
- A policy that covers inventory losses in addition to receivables
Correct answer: A policy that covers all or most of the seller's domestic and export receivables
Whole turnover policies spread risk across the seller's entire or most of their buyer portfolio, which allows insurers to offer lower premiums through diversification.
Question 5: Which factor most directly affects the premium rate a trade credit insurer will quote?
- The seller's revenue growth rate
- The buyer's payment history and industry sector risk (Correct answer)
- The seller's profit margin on insured invoices
- The number of years the seller has been in business
Correct answer: The buyer's payment history and industry sector risk
Insurers assess buyer creditworthiness and sector risk to price premiums, since buyer default is the event being insured against.
Question 6: Under a typical trade credit insurance policy, what is the 'waiting period'?
- The time between policy purchase and when coverage becomes effective
- The period after an invoice due date that must elapse before a protracted default claim can be filed (Correct answer)
- The insurer's processing time to approve a buyer credit limit
- The grace period allowed before a buyer is considered in breach
Correct answer: The period after an invoice due date that must elapse before a protracted default claim can be filed
The waiting period (often 90–180 days after the due date) must pass before the insured can file a protracted default claim, distinguishing slow payment from actual default.
CCP CCP Credit Insurance & Risk Mitigation 1
What is the primary purpose of trade credit insurance in a B2B credit management program?