News & Insights

Trade credit insurance and guidance on COVID-19 implications

Published 13 May 2020

Managing credit risk in the prevailing COVID-19 pandemic environment is critical and should form part of a business continuity plan, as businesses move to manage cash flow and apply for government aid packages (subject to eligibility).

Credit insurance policies protect the policy holder(s) from non-payment by customers due to defined insured events or perils. This typically covers insolvency and protracted default events. Some policies also cover defined political risks.

Claims volume is expected to increase following lockdown and government enforced Movement Control Orders. These global restrictions have resulted in a significant impact to normal trading conditions, leading to

  • supply chain disruption, including default by end buyers of goods and services
  • restricted access to lending facilities and capital markets
  • requests for deferred payments, adjusted payment terms and repayment plans
  • contracting customer demand.


With global insolvencies projected to reach 2008 proportions, trade credit markets will be challenged by the prevailing economic turbulence. Therefore maintaining regular contact with suppliers and customers is important.

Reviewing insurance cover

We strongly recommend an early review of your insurance cover is undertaken, with particular focus on

  • reviewing your trade credit insurance policy wording, including policy exclusions. Contact your Gallagher trade credit specialist with any questions or concerns
  • understanding what triggers a trade credit insurance claim and notifications that must be provided to the insurer to comply with the policy wording, including the required notification timelines
  • working closely with your customers (debtors) to understand cash flow or trading concerns early that may trigger a notification and/or create a delay or default. Contact your Gallagher account manager should anything noteworthy come up in those discussions. If in doubt, err on the side of caution.

Notifiable events

It is an important condition of the policy that the insurer is notified of any adverse information as and when you are made aware of it. Adverse information includes anything that could give rise to a potential claim against the policy.

There are two events where the insurer must be notified, including, but not limited to

    1. Maximum extension period (MEP) breaches

The maximum extension period (or MEP) is defined as the point at which the insurer needs to be notified that an overdue account could result in a claim. The present circumstances heighten the chance of late payments.

Most trade credit policies include an MEP provision in the policy wording which specifies how many days from the original due date a business has to work with the buyer to secure payment, without notification to the insurer.

It is important to be aware that once the MEP has been breached, businesses must place the account on ‘stop’. Any goods or services provided post MEP breach will not be covered under the trade credit insurance policy.

As an MEP breach is deemed a ‘notifiable event’, the insurer must be notified immediately, providing the current debtor position and details relating to non-payment. Your Gallagher trade credit specialist can provide guidance on the reporting process.

    1. Proposed Repayment Schedule

Where a debtor requests a formal repayment plan, it is important that you seek insurer approval prior to accepting the proposal, particularly where the rescheduled payment dates will see a breach in the MEP.

If a customer falls into protracted default or becomes insolvent, you will be indemnified for the cost of goods and services you have delivered within the scope of the trade credit insurance policy. When speaking with customers look out for signs that cash flow may be challenged and advise your Gallagher trade credit specialist if insolvency or payment default looks to be a likely outcome.
Below is an example of a material fact an insurer would expect to be notified of.

"There is an outstanding $100K invoice. While it is not overdue, the buyer has stated that they are unable to pay the invoice as a result of cash flow issues."

If you are unsure as to whether an event is deemed reportable, we recommend that you contact your Gallagher trade credit specialist for advice.

Credit limit reductions 

COVID-19 related trading challenges have led to major limit reductions by the credit insurers across client portfolios. While insurers generally believe they are helping clients to navigate a more challenging commercial environment, we have seen a number of cases where there has been insufficient discussion with clients regarding the specific impacts of COVID-19 to their business.

Through a coordinated approach, Gallagher is working with credit insurers to help them better understand which of our clients' customers require limit support to continue trading in these unprecedented times. 

We are here to help

Gallagher has a dedicated team of trade credit specialists who are well positioned to provide advice on all aspects of trade credit insurance. Please contact our team should you wish to discuss any aspect of your current trade credit program, including where a notifiable event may be applicable.

Connect with an expertchevron-right

Gallagher experts 


Racheal Tumelty, National Head of Trade Credit, Surety & Political Risks Surety CR & PR

Michelle Prete, Client Manager Surety CR & PR

Janelle McDade, Client Manager Surety CR & PR


Michael Woodward, National Practice Leader Surety CR & PR

Paul Morgan, Client Manager Surety CR & PR

Vic / SA / Tas

Enzo Amato, Account Manager Surety CR & PR


Paul Morgan, Client Manager Surety CR & PR


Further reading

Protect your business from debtor default

How trade credit insurance provides stability in uncertain times


Gallagher provides insurance, risk management and benefits consulting services for clients in response to both known and unknown risk exposures. When providing analysis and recommendations regarding potential insurance coverage, potential claims and/or operational strategy in response to national emergencies (including health crises), we do so from an insurance and/or risk management perspective, and offer broad information about risk mitigation, loss control strategy and potential claim exposures. We have prepared this commentary and other news alerts for general information purposes only and the material is not intended to be, nor should it be interpreted as, legal or client-specific risk management advice. General insurance descriptions contained herein do not include complete insurance policy definitions, terms and/or conditions, and should not be relied on for coverage interpretation. The information may not include current governmental or insurance developments, is provided without knowledge of the individual recipient’s industry or specific business or coverage circumstances, and in no way reflects or promises to provide insurance coverage outcomes that only insurance carriers’ control.
Gallagher publications may contain links to non-Gallagher websites that are created and controlled by other organisations. We claim no responsibility for the content of any linked website, or any link contained therein. The inclusion of any link does not imply endorsement by Gallagher, as we have no responsibility for information referenced in material owned and controlled by other parties. Gallagher strongly encourages you to review any separate terms of use and privacy policies governing use of these third party websites and resources.
Insurance brokerage and related services to be provided by Arthur J. Gallagher & Co (Aus) Limited (ABN 34 005 543 920). Australian Financial Services License (AFSL) No. 238312
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