Transaction insurance is a type of property insurance. It is carried out after a thorough examination of the study of contracts, financial agreements, conditions of cooperation between the insured and his counterparty.
Transaction insurance is concluded in case of a possible occurrence of an insured event in which the counterparty violates obligations that entail unavoidable losses for the insured. An insurance event will be deemed to have occurred even if improper fulfillment (non-fulfillment) of obligations under the insurance contract occurred as a result of force majeure and circumstances: explosion, fire, natural disasters and other insured events.
Today, transaction insurance is becoming a reasonable and justifiable measure for entrepreneurs in the conduct of Russian business. The Civil Code of the Russian Federation recognizes more than ten insurance risks in which a transaction may be considered invalid. The only effective way to help ensure financial protection for the insurer’s money is to insure the transaction in the form of insurance of concluded commercial contracts.
The contract insurance period is valid until the insurer’s liability for damages, that is, if the counterparty fails to fulfill its obligations under the main contract.
The insurance amount is determined by the amount of the amount of damage that the policyholder incurred upon the occurrence of the insurance event.
Transaction insurance becomes possible only if the policyholder has a basic agreement confirming the completion of a commercial transaction.
Transaction insurance is divided into several types of insurance, the main ones:
- counterparty bankruptcy insurance;
- insurance against non-fulfillment of contractual obligations;
- accounts receivable insurance.
When insuring contracts against the bankruptcy of a counterparty, the insured person is guaranteed (under a transaction insurance contract) insurance indemnity in the event that the counterparty is declared bankrupt on the basis of a court decision.
Effective and efficient methods for transaction insurance include receivables insurance. This type of insurance allows you to take insurance business risks arising from the non-repayment of funds for the loan, goods and services, as well as bankruptcy of the counterparty.
Accounts receivable insurance
This type of insurance involves insurance against possible risks of untimely return of funds by the counterparty (buyer), as well as its bankruptcy. The use of this insurance is especially effective for manufacturing and trading companies that operate in competitive markets and are not able to set counterparties their terms of sales, as well as for those companies that only plan to introduce their services (goods, works) into new market niches of the economy.
Benefits of Receivables Insurance
The main advantage in receivables insurance is to strengthen the financial position of the insured. Firstly, this is due to the fact that accounts receivable insurance will help protect the insured in the event of bankruptcy of his main and major counterparty. If the insured worked with the counterparty under the deferred payment scheme, then it is insurance that will allow him to stay “afloat”. Secondly, the availability of insurance ensures a more loyal attitude of the bank (as well as more favorable interest) if it is necessary for the insured to take out a loan. At the same time, for the collateral in a bank loan, the insured receivables may perfectly suit.
By concluding a receivables insurance contract, the policyholder receives two undeniable benefits:
- conducting a sound assessment of the credit risks of the company;
- providing insurance compensation upon occurrence of an insurance event.
Another important advantage of this type of insurance is the opportunity for the insured to enter new markets in the regions. Accounts receivable insurance allows the conclusion of basic contracts without first thoroughly examining the solvency of new customers.
Disadvantages of receivables insurance
The main disadvantage of accounts receivable insurance is the too high cost for the provision of this service by insurers. The insurance premium may reach nine percent of the total volume of the insured property interest of the insured. Accounts receivable insurance refers to types of insurance of high risk, therefore the high insurance premium of the insurer follows from this.
It is quite often not possible to calculate the probability of occurrence of risk situations in transaction insurance. This involves a complex system for identifying and identifying the possible occurrence of insured events. Therefore, when concluding a transaction insurance contract, the insurer carefully assesses the degree of expected risk, conducts a detailed study of the essential conditions of the main contract, checks the good faith of both the insured and its counterparty, and takes into account a list of other factors that are important for determining the degree of probability of an insurance event and the amount of the alleged damage.