A credit insurance policy never covers the whole receivable. Usual coverage percentages sit between eighty-five and ninety-five percent, and the rest stays with the insured. This is not a negotiating withholding nor a disguised deductible, and confusing the two makes everything else reason wrongly: a deductible removes a fixed amount and vanishes on large losses, whereas a coverage share removes a proportion and weighs all the more as the loss grows.
What the retained share buys the insurer is alignment, and it must be seen across the contract's whole span rather than only at settlement. Before the loss it gives the insured a reason to choose its buyers and watch its exposures, since it will lose on every default. During the overdue it gives it a reason to suspend and to chase, which the previous module showed decisive. After indemnification it gives it a reason to support recovery, whose proceeds are shared pro rata. Three moments, one mechanism.
The underlying reason is that credit insurance covers a risk the insured partly controls, which is not the case with a fire. It is the insured who decides whom to sell to, on what payment terms, and up to what exposure. An instrument fully discharging them would turn a commercial decision into a costless wager, and that is why one hundred percent cover practically does not exist. The coverage share is therefore not the price of incomplete cover, it is what makes cover possible.
Comparing two offers then requires arithmetic few perform correctly. The gap between an eighty-five and a ninety-five percent share is not compared with the credit limits granted, which will never all be used, but with expected losses. Ten points of cover are worth ten percent of the year's expected losses, and that is the figure to set against the additional premium. An exporter comparing ten points with its exposures will always conclude the higher share is cheap, and will be wrong by an order of magnitude.
The share must then be read with what surrounds it, since it never operates alone. An annual deductible, an aggregate, and above all the recovery-sharing clause combine with it. A ninety-five percent share with an unfavorable recovery split can yield less than an eighty-five percent share with a strict pro rata split, because on files that recover well it is the second clause that decides. Comparing rates without reading the splits means comparing two numbers that do not measure the same thing.
A less known effect deserves flagging because it lies outside the insurance contract. The retained share remains a real exposure on the exporter's balance sheet, and a bank financing receivables looks at it: the coverage percentage enters the decision to advance against invoices and the rate granted. A higher share can therefore be partly paid for outside the premium, through cheaper financing, and that trade-off is not made in the insurance department. It is one of the rare decisions in this line where the right counterpart is the finance director.
In practice the reading comes down to three actions. Quantify the difference in coverage share against expected losses and not against limits. Read the recovery-sharing clause in the same movement, since it can reverse the conclusion. And check with the financier what the coverage percentage changes in the cost of the advance, because the answer may be worth more than the premium gap argued over for three weeks.
An exporter compares two offers on a portfolio of 40 million euros of granted limits. Offer A proposes an 85% coverage share for a 210,000 euro premium. Offer B proposes 95% for 290,000. Expected losses, established over five years, are 1.1 million euros a year. Offer A provides for recovery sharing strictly pro rata to the shares borne; Offer B provides that the insurer is fully reimbursed out of the first sums recovered before any sharing. The sales director recommends Offer B, on the ground that ten points of cover on 40 million of limits represent 4 million euros for 80,000 of additional premium.
The sales director's reasoning is wrong by an order of magnitude, and the error is the one this module targets: he compares points of coverage with LIMITS, when a coverage share operates only on losses. The 40 million will never all go unpaid; what compares is ten points of expected losses, that is 110,000 euros a year, against 80,000 of additional premium. The real gap is 30,000 euros in Offer B's favor, not 4 million: the decision stays favorable, but it is tight where it looked obvious, which entirely changes how it should be discussed. Then comes the clause nobody read and that can reverse the conclusion. Offer B reimburses the insurer in full out of the first sums recovered, meaning that on a well-recovered file the exporter receives its share last, or not at all, whereas Offer A shares pro rata from the first euro. On a portfolio whose receivables partly recover, which is the ordinary case, Offer B's 30,000 advantage can be entirely consumed by the split. Both clauses must therefore be quantified together rather than one after the other. A third term remains that the insurance department will not see: a 95% share improves the advance rate the bank grants against invoices. If the financing difference exceeds a few tens of thousands of euros, it decides on its own, and the useful conversation is no longer with the insurer.
- 01A coverage share is not a deductible: the first removes a proportion and weighs more as the loss grows, the second vanishes on large losses.
- 02The retained share buys alignment at three moments: choosing buyers, firmness during the overdue, and supporting recovery after payment.
- 03Credit insurance covers a risk the insured partly controls, which is why one hundred percent cover does not exist.
- 04A difference in coverage share is quantified against expected losses and never against limits: comparing with limits errs by an order of magnitude.
- 05The recovery-sharing clause can reverse the conclusion: two shares are only comparable by reading the splits in the same movement.