Avoiding disputes, risk with domestic trade credit insurance

Due to its marked financial attributes, short-term domestic trade credit insurance has played an active protective role in domestic trade, particularly commodities trading, in recent years. However, due to the slowdown in the Chinese economy, credit insurance has become one of the types of insurance with a relatively high risk probability in the past two years. In this period, Wintell & Co’s insurance law practice group has been involved in a number of credit insurance disputes, and the author will share some experiences with respect to the special features of this type of insurance and our handling of related disputes.

Underwriting conditions

In terms of the subject matter of insurance, underwriting conditions, risk sharing, and claim conditions, credit insurance has certain features that distinguish it from general property insurance.

Subject matter. The subject matter of credit insurance is the claims of the insured (the seller) against its debtor (the buyer), namely, in the instance where the buyer in domestic trade is late in payment of accounts payable, the insurer assumes the responsibility for paying to the insured the amounts specified in the trade contract.

Underwriting conditions. The financing and financial attributes of credit insurance determine that the insured is required to conduct a review of the creditworthiness and approve the limit of the insured’s transaction counterparty, i.e. the buyer, when its writes the policy. A condition precedent of the insured assuming the insurance liabilities is the approved limit, the insurer assuming insurance liability only for the insured’s buyer’s outstanding accounts payable that fall within such limit.