Companies that sell on credit are exposed to the risk of non-payment. This risk, which is often overlooked, can jeopardise their cash flow and even their survival. Internal credit insurance offers protection against this threat.
Scope of internal credit insurance
Classic insolvency insurance
Internal credit insurance mainly protects against the insolvency of debtors. However, this concept is not the same as in ordinary law. The policy defines the situations covered.
This guarantee applies to short-term trade credit (30 to 180 days). The starting point is generally the day of delivery or service.
Under article R. 321-1 of the French Insurance Code, credit insurance is included in class 14, separate from the guarantor (branch 15). This distinction confirms its specific legal nature.
Insurance for exceptional risks
For large companies, there is "excess" or high-deductible insurance. This only covers major claims, above a high threshold (several tens or hundreds of thousands of euros).
Companies that take out this type of contract generally have a solid cash position and a dedicated credit risk management department.
The main insurers on the market
SFAC (Société française de l'assurance crédit), a subsidiary of the Euler group owned by Allianz, has historically dominated the French market. Other insurers have specialised in specific sectors such as agri-food or textiles.
For a long time, these players operated in an uncertain legal environment. The law of 13 July 1930 expressly excluded credit insurance. It was the European directive no. 87/343 of 22 June 1987 and Law 94-5 of 4 January 1994, which clarified its legal status.
Risk management and premium calculation
Risk assessment by the insurer
Credit insurers require that the insurance cover the entire business or at least a significant sector. In this way, they avoid anti-selection of risks.
- Political and catastrophic risks
- Receivables from private individuals or non-trading organisations
- Companies in suspension of payments
- Companies controlled by the insured
- Companies and public authorities often
The Court of Cassation has confirmed that an insurer may refuse to insure a customer who is already in arrears (Cass. 1re civ., 18 December 1990, RGAT 1991, p. 170).
Declaration of risk by the policyholder
In accordance with article L. 113-2 of the French Insurance Code, the policyholder must provide all the information needed to assess the risk: balance sheets, sales, customer profile, bad debts.
On this basis, the insurer grants its "approval" (a term criticised as a source of confusion with administrative approval). This agreement may be limited in time or open-ended.
Named and unnamed customers
In practice, there are two categories:
- Unnamed" customers: small claims for which the insured does not need to apply for authorisation
- Named" customers: large receivables requiring precise identification of the debtor (name, address, company registration number, bank details).
This distinction makes it possible to combine efficiency and risk control.
Special features of the premium calculation
Premiums are not calculated solely on the basis of pooling rules. It is highly dependent on the profile of the policyholder and his clientele.
It generally includes :
- A fixed minimum premium
- A bonus that varies according to the volume and quality of the customer base
In the event of non-payment, Article L. 113-3 of the Insurance Code does not apply in full. The insurer may terminate after 15 days' formal notice plus 10 additional days (Cass. 1re civ., 6 October 1993, RGAT 1994, p. 248).
The guarantees offered
Waiting periods
The guarantee is often acquired after a period of time has elapsed between the due date and the discovery of unpaid debts. This period varies according to the amount, and can be as long as several months.
This mechanism avoids costly legal proceedings for small claims. The insurer also checks that the policyholder has tried to recover the debt.
Deductibles and ceilings
Contracts generally include deductibles to limit small claims and maximum cover.
The ceilings can be defined as a multiple of the premium (15 to 20 times). The insurer also specifies, in an approval form, the maximum amount of credit granted to each customer.
Warranty reductions or cancellations
The insurer may modify the approval granted. The Court of Cassation has ruled that "the right of an insurer who has undertaken to guarantee an insured against the risk of insolvency of its clients to cancel for the future a guarantee already granted does not have the effect of depriving the contract of its random nature" (Cass. 1re civ., 3 May 1995, Sacren c/ FNAL).
The policyholder must declare the turnover to be covered on a regular basis (monthly or quarterly), which may adjust the premium upwards or downwards.
Limits to abusive denunciations
The termination must not be brutal or unjustified. The Court of Cassation has ruled that withdrawals of approval without legitimate reason are punishable under article 1382 (now 1240) of the Civil Code.
Withdrawal cannot simply be the result of an increase in risk, which would call into question the random nature of the contract.
Claims management
Obligation to declare
The insured must declare the unpaid amount within the contractual time limit from the due date or authorised extension.
Failure to comply with this time limit will result in a forfeiture limited to the claim in question, without calling into question the contract as a whole. This principle is in line with common insurance law.
Compensation terms and conditions
Compensation is paid within the time limits set out in the contract, generally one month for small claims and several months for larger claims.
If the insured has obtained a partial payment, the indemnity will be reduced accordingly.
Collection mandate and subrogation
The contract generally includes a mandate allowing the insurer to effect recovery. Depending on the policy, the insured may or may not first attempt to recover the sums owed.
Once compensation has been paid, the insurer is subrogated to the policyholder's rights against the debtor, in accordance with the principle of legal subrogation. This mechanism optimises the chances of recovery while simplifying the procedures for the policyholder.
To determine which policy is best suited to your needs, a detailed analysis of your customer portfolio and your exposure to risk is essential. Our firm can support you in this process and check that the cover offered is appropriate for your particular situation.
Sources
- Insurance Code, article L. 111-6, 1°, c (definition of large risks)
- Insurance Code, article L. 112-2 (obligation to provide information)
- Insurance Code, article L. 113-2 (declaration of risk)
- Insurance Code, article R. 321-1 (classification of classes of insurance)
- Cass. 1st civ. 18 December 1990, RGAT 1991, p. 170, note by J. Kullmann
- Cass. 1re civ. 6 October 1993, RGAT 1994, p. 248, obs. A. Favre-Rochex
- Cass. 1st civ. 3 May 1995, Sacren c/ FNAL, Bull. civ. 1995, I, n° 184
- Directive no. 87/343 of 22 June 1987, OJEC no. L 185, 4 July 1987
- Law no. 94-5 of 4 January 1994 (amendment of the Insurance Code)
- Nicolas, V., "Fasc. 800: Assurance-crédit interne et à l'exportation", JurisClasseur Droit bancaire et financier, 31 August 2005.
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