Does CRiON subscribe to the Code of Conduct for credit insurance sector?
CRiON was one of the providers to initiate the Code of Conduct.
More details about these rules of conduct are set out below.
Principles of the Code of Conduct
Credit insurance is a tool used by risk management providers who help companies to control and reduce their risks in relation to commercial credit transactions by covering insurable risks, risk-prevention and debt collection services.
Credit insurers offer compensation against the losses incurred by businesses.
Credit derives from the Latin word “credere”, which means “believe in”. Trust and transparency are the foundations of our financial system and also of our particular product, credit insurance. Mutual trust enables the sector to realise its full potential.
The aim of this Code of Conduct is to make the sector more efficient, offering benefits for all of the parties involved. This Code of Conduct was drawn up to formalise the obligations of all parties and to make those obligations transparent.
This document is an explanation of the fundamental principles and is not legally binding. Policyholders should make sure that every policy they sign meets their requirements.
This Code of Conduct has an effect in six different areas:
- It increases competition: this is an important element for the way insurance companies behave in a market characterised by its structure of oligopoly, but one in which price competition is fierce.
- It encourages transparency: the Code of Conduct encourages all parties, including sellers, to embrace greater openness in such a way that both policyholders and insurance companies are able to have more information about their buyers.
- It limits fraud: which often happens, for example, when policyholders state a lower amount covered than the actual amount in order to reduce the insurance premium.
- It changes perceptions: by having a positive impact on the perception of credit insurance as an essential part of the credit (risk) management process.
- It reduces the 'air' in credit limits by bringing lines of credit for buyers closer to their actual usage.
- It increases sustainability: by optimising communication between policyholders and insurers when credit limits are lowered or withdrawn. A “stop-and-go" approach must be avoided.
In the first instance, this Code of Conduct is a bilateral agreement between the policyholder and the credit insurance company. But it goes further than that, because the broker is also involved as the intermediary and the buyer participates indirectly, although in most cases the buyer has no contractual relationship with the credit insurer.
The fundamental principles of the Code of Conduct are:
- Openness and an exchange of accurate information
- A win-win situation for all parties
- Mutual trust and dialogue
- Maximum use of IT resources
- Discretion and professionalism
The contractual parties to the Code of Conduct.
The Code of Conduct reflects the relations between four parties.
We need to make a distinction between:
- the two contracting parties (the credit insurance company & the company with credit insurance cover)
- the broker (acting as intermediary)
- the buyer or debtor (who is not a party to the contract)
Interaction between the parties may be described as follows:
- The credit insurance policyholder maintains a commercial relationship with the buyer and takes out a credit insurance policy with a Credit Insurance Company, in which the broker facilitates the relationship between the policyholder and the credit insurer.
- The buyer is the "Insured object" for the Credit Insurance Company
NB: the Code of Conduct is supported by all credit insurance companies, as well as by companies with credit insurance and brokers. The buyer is not directly implicated in the Code of Conduct.
The specific interaction with regard to credit decisions may be described as follows:
- The credit insurance policyholder requests a credit limit for the buyer or already has a credit limit.
- If the credit insurer has insufficient recent information to be able to allocate or maintain a credit limit, the credit insurance policyholder is prepared to supply the credit insurer with information such as payment experience.
- If it is necessary for additional information to be obtained from the buyer itself, the policyholder is prepared to cooperate in this.
- The credit insurer is prepared to explain its credit decisions in full.
- The broker facilitates communication between all of the parties.
Features of the Code of Conduct
The Code of Conduct has six features:
- It is a ‘Gentlemen’s agreement’ and hence is not legally binding. The Code is not a statutory initiative, but one introduced by the sector that is based on the credit management community (companies & brokers) and is supported both by the credit management community and the credit management companies. Its principal value is a moral one.
- The Code is ratified and discussed for every existing policy and for writing every new policy.
- A report is published every year about progress regarding the implementation of the Code of Conduct.
- In the first instance, the Code of Conduct will be launched as a pilot project for Belgium, after which there will be negotiations on a European level (in conjunction with the European Commission and the European credit insurance organisations).
- The message of the Code of Conduct is simple. For this reason, it will be given great prominence (for example via the media). It will be suggested to credit insurance companies that they include the Code of Conduct in their promotional material by stating “We support the Code of Conduct”.
- Brokers will be invited to take account of the Code of Conduct and to comply with it in their function as intermediary between both parties to the contract.
Obligations of the credit insurance policyholder
As the supplier, the credit insurance policyholder has a contractual relationship with the buyer. As such, the policyholder is in a certain sense the buyer’s representative, although the insurer is also able to gain direct access to information about the buyer (or by using various sources of information). The first two points must be seen in that light.
The credit insurance policyholder undertakes as follows:
- To assist with the creditworthiness investigation and support access to the buyer’s financial figures – or to any other financial information – and to pass on these documents at the request of the insurer.
- To develop sound credit management and provide accurate information about the amount to be insured.
- When requested, to provide information about risks (wherever possible, taking account of all statutory restrictions and IT limitations) and the payment behaviour of buyers known to the insurer (for example by way of days sales outstanding) in an IT-efficient manner.
- To notify the insurer about relations with buyers, in particular about lines of credit virtually never used for buyers.
Obligations of the credit insurance companies
The credit insurance companies undertake as follows:
To inform the insured company about any new, ‘relevant’ information about a buyer’s insured credit. This may be by setting up an alarm warning system designed to inform insured companies about any important change in the creditworthiness of one of their debtors and/or if a rating is modified.
To optimise customer-friendly databases that are partially (public domain) accessible for the credit insurance policyholder.
- To provide a ratings system about debtors, if one is not already in place, and to pass on details of the rating and reasons for that rating to the insured company in line with the terms agreed. This rating must be viewed as an integral part of the overall credit assessment study that the insurer is obliged to conduct in order to determine lines of credit for debtors.
- To develop a system that partially makes an "information push" possible (e.g. a web-based application).
- To present a clear business strategy in relation to the possible adjustment of the lines of credit based on a framework with objective criteria and conditions agreed in advance. Decisions about individual credit limits are normally based on more than just the situation of the specific commercial sector in which that particular company is operating. Decisions are based on a range of information, public and confidential, financial and non-financial that constitutes the sole source of value for a credit insurer.
- To avoid competitive price breakdowns that threaten to adversely affect quality (acceptance ratios, speed of decision-making, etc.).
- To take initiatives to discuss lines of credit that are virtually never used.
To conduct an analysis in conjunction with the policyholder if some lines can be limited on debtors and others increase.
To develop and/or encourage solutions to systematically avoid abrupt volatility.
- To inform the customer as much beforehand as is reasonably possible about any decision to terminate or significantly restrict the credit insurance cover relating to the customer’s company. Credit insurers will make every effort to provide explanations to companies where cover is modified or terminated.
Obligations of the brokers
In their operations as intermediaries, brokers undertake:
- To actively encourage use of the Code of Conduct.
- To inform both partners to the contract about compliance with the Code of Conduct.
- To ensure that the Code of Conduct is included in any new or renewed policy.
- To organise the promotion and dissemination at a European level, aimed at creating a European Code of Conduct for the credit insurance sector.
- To carry out a professional analysis of credit insurance proposals, taking account of every aspect of credit insurance: premium, quality, lines of credit, reporting tools, provision of services, etc.
- To analyse the real needs of potential customers / insured companies and to pass this information on correctly to the credit insurers.
- To pass on all relevant information about the potential customer / insured companies / buyer to the insurance company.
- To take initiatives to discuss lines of credit that are virtually never used.
All parties will:
- Investigate possibilities in the area of IT to facilitate the transfer of information and to restrict the administrative workload as much as possible.
To promote, in a neutral manner, the concept, operation and added value of credit insurance in the credit management process via:
- SME organisations,
- schools and educational programmes (including academic networks).
This includes explaining the preventative role of the credit insurer: the credit insurer’s added value lies in the fact that it makes as accurate a distinction as possible between healthy companies, on the one hand, and unhealthy companies that run too great a risk of going bankrupt within the coming year, on the other.
- Work together to obtains as much information as possible about buyers, based on the principle of “a joint effort”.
- Find ways to guarantee as much as possible the implementation of this Code of Conduct through actions such as best practices, benchmarking and positive reporting.