CCP CCP Credit Insurance & Risk Mitigation 1

Question 1

What is the primary purpose of trade credit insurance in a B2B credit management program?

Accepted Answer

To protect the seller against buyer insolvency or protracted default

Answer

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?

Accepted Answer

Co-insurance percentage

Answer

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?

Accepted Answer

Discretionary credit limit (DCL)

Answer

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?

Accepted Answer

A policy that covers all or most of the seller's domestic and export receivables

Answer

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?

Accepted Answer

The buyer's payment history and industry sector risk

Answer

Insurers assess buyer creditworthiness and sector risk to price premiums, since buyer default is the event being insured against.

(CCP) Certified Credit Professional Practice Test

(CCP) Certified Credit Professional Practice Test

CCP CCP Credit Insurance & Risk Mitigation 1