Invoice financing and credit insurance: Is the problem with the product or the conduct?

THE world of credit insurance was propelled into prominence last year, when an underwriter in Australia did not renew its insurance policy with Greensill, setting into motion a staggering sequence of events culminating in the collapse of the behemoth invoice financing company.

The collapse of Greensill is a cautionary tale of many things, but none more important than ensuring alignment between the product of credit insurance and the conduct surrounding its cover. In today’s liquidity crunch with rising interest rates and inflated commodities prices, the role of credit insurance is back in the spotlight as companies desperately look to raise capital by selling their invoices.

Credit insurance is a useful product designed to provide coverage over the non-payment by an obligor. In a supply chain context, it provides cover of non-payment of an invoice owed by a buyer, typically a large company. Invoice receivables from such highly rated buyers, lumped into a portfolio and wrapped with credit insurance, would make a pretty compelling business proposition for any investor.