A credit insurance policy renews every year, and that appointment is the only moment when the insurer can revise without having to justify itself. After a year heavy in losses, or after a downgrade of a country the insured sells into, it arrives with three requests of unequal nature: raise the rate, cut the limits granted on certain buyers, and tighten contractual conditions. The exporter receiving that letter two months before expiry, with an order book already committed, believes it must accept everything or refuse everything. That is wrong, and knowing what is really negotiable is what distinguishes a renewal endured from a renewal discussed.
One must first separate what is a portfolio decision from what is an assessment of the insured, because the two are not argued with the same material. A general cut in limits on a country is an aggregate decision taken across dozens of insureds, and it is not obtained by demonstrating the quality of one's own buyers: what is missing is the metre of capacity, not confidence. Conversely, a rate increase motivated by the insured's own loss experience, or a tightening of notification periods, bears on it and is argued with its figures. Answering the first with the second's arguments is the commonest way of wasting time.
What is almost never negotiable deserves to be known so as to stop attacking it. The limits an insurer devotes to a saturated country, exclusions resulting from a reinsurance decision, and a public window's floor rates arise from constraints outside the relationship. What is negotiable, by contrast, is wider than one thinks: the timetable for implementing a cut, the fate of orders already in the book, the coverage share, the annual deductible, the notification period, the recovery application clause, and the declared perimeter. On a difficult renewal, most of the gain lies in that second list, which nobody looks at because everyone is talking about the rate.
The most important thing to obtain is in fact not a concession on price but a transition. A cut in limits announced two months before expiry hits orders already accepted, manufactured or in the course of delivery, which the exporter can no longer cancel. Asking that the limits in force continue to cover orders taken before the notification, or for a phased run-off over one or two quarters, costs the insurer little, since it staggers its withdrawal, and saves the exporter the only shipments it no longer controls. That request almost always succeeds when made early and quantified, and almost never when made on the day of expiry.
One must also know what the insured brings to the table, because it does not arrive empty-handed. An insurer losing a book loses an entire population, including the good buyers that finance the bad, and it knows it. An exporter presenting a credible plan, exiting two doubtful buyers, shortening its payment terms, strengthening its chasing, offers its insurer what it is really after, namely an improvement in future loss experience, and obtains conditions in exchange. It is a negotiation about information as much as about price.
The threat to leave must be handled carefully and used rarely. Changing insurer after a bad year exposes one to adverse selection in reverse: the new carrier knows why you are coming, it will ask for the loss history, and it will not take on the buyers that have just behaved badly. One therefore often obtains an introductory rate on a truncated perimeter, which is not a better contract. Testing the market remains useful, to know where one stands, but leaving is decided on the substance of the contract and not on the price line.
The method amounts to a calendar rather than a posture. Ask the insurer for its intentions three to four months before expiry, rather than waiting for its letter. Sort its requests into two columns, portfolio and specific to us. Answer the second with figures and the first with requests for transition. Negotiate clauses before the rate, because they weigh more and will not be reopened. And test the market to place oneself, without making departure an argument, because it turns against whoever uses it after a bad year.
An agricultural equipment exporter, 26 million euros of insured turnover, receives on November 3 its renewal proposal, with expiry on December 31. The insurer raises the rate by a third, halves the limits granted on a West African country where the exporter does 7 million, and shortens the overdue notification period from sixty days to thirty. The exporter's own loss experience is good: a single claim in three years. The order book is committed to May, including 4.3 million already ordered on that country. Management is considering approaching two competitors. How should this renewal be conducted?
Three requests are made and they are not of the same nature, which sets the answer. The cut in limits on that country is an aggregate decision taken across dozens of insureds: the exporter's good loss experience cannot touch it, and arguing there will consume what little time remains. The one-third increase, by contrast, bears on the exporter and is argued with its figures, a single claim in three years being a real argument. Shortening the notification period from sixty days to thirty is the point nobody looks at and the one that will cost most: thirty days is short for an accounting circuit not designed for it, and it is the leading cause of forfeiture. It is negotiated, or accepted while installing an automatic notification produced by the accounting system. But the most profitable request is none of the three: it is the 4.3 million already ordered on that country, which the exporter can no longer cancel and which the cut in limits will leave bare. Asking that the limits in force continue to cover orders taken before the notification, or for a run-off over two quarters, costs the insurer little since it staggers its withdrawal, and that is what must be obtained first, early and quantified. Testing the market is useful for placing oneself, but making it a lever would be unwise: after a cut on a country, a new carrier will ask for the history and will not take that country on, so one would obtain an introductory rate on a truncated perimeter.
- 01Renewal is the only moment when the insurer revises without justifying itself: its requests sort into portfolio decision and assessment of the insured.
- 02A cut in limits on a country is not fought with the quality of one's buyers: what is missing is the metre of capacity, not confidence.
- 03Most of the gain is in the clauses, coverage share, deductible, notification period, recovery application, which nobody looks at because everyone talks rates.
- 04The most profitable request is a transition on orders already taken: it costs the insurer little and saves what the insured no longer controls.
- 05Threatening to leave after a bad year invites reverse adverse selection: one gets an introductory rate on a truncated perimeter.