INTRODUCTION OF PAYMENT PROTECTION

Payment protection protects your business from non-payment of commercial debt. It makes sure that your invoices will be paid and allows you to reliably manage the commercial and political risks of trade.While credit insurance indemnifies losses incurred from non-payment of commercial debt, the ultimate goal is to help your business avoid catastrophic losses and grow profitability. The key is having the best information about companies, sectors and economic trends to make informed credit decisions and therefore avoid and minimize losses.Payment protection insurance is an invaluable aid to successful national and international business-to-business trade. It covers the risk of financial loss that can occur when trade credit is offered by a business to its corporate customers thus providing a set period of credit after provision of products or services before payment is due. In these circumstances, there is always a risk of non-payment, either because the customer may be unable or unwilling to pay, or because an unforeseen event prevents successful completion of the sales: for instance, a shortage of the currency of the contract in the customers country, or government intervention, or a natural disaster.

MEANING OF PAYMENT PROTECTION

Payment protection insurance (PPI), also known as credit insurance, credit protection insurance, or loan repayment insurance, is an insurance product that enables consumers to insure repayment of loans if the borrower dies, becomes ill or disabled, loses a job, or faces other circumstances that may prevent them from earning income to service the debt. It is not to be confused with income protection insurance, which is not specific to a debt but covers any income. PPI is widely sold by banks and other credit providers as an add-on to the loan or overdraft product.[1]

Credit insurance can be purchased to insure all kinds of consumer loans including car loans, loans from finance companies, and home mortgage borrowing. Credit card agreements may include a form of PPI cover as standard. Policies are also available to cover specific categories of risk, e.g. credit life insurance, credit disability insurance, and credit accident insurance.[2]

Although the policy is purchased by the consumer/borrower, the benefit paid in the event of a claim goes to the company that extended credit to the consumer.

PPI usually covers minimum loan (or overdraft) payments for a finite period (typically 12 months). After this point the borrower must find other means to repay the debt, though the period covered by insurance is typically long enough for most people to start working again and earn enough to service their debt.[3] PPI is different from other types of insurance such as home insurance, in that it can be quite difficult to determine if it is right for a person or not. Careful assessment of what would happen if a person became unemployed would need to be considered, as payments in lieu of notice (for example) may render a claim ineligible despite the insured person being genuinely unemployed. In this case, the approach taken by PPI insurers is consistent with that taken by the Benefits Agency in respect of unemployment benefits.

DEFINITION OF 'CREDIT INSURANCE'

Credit insurance is a type of life insurance policy purchased by a borrower that pays off one or more existing debts in the event of a death, disability, or in rare cases, unemployment. Credit insurance is marketed most often as a credit card feature, with the monthly cost charging a low percentage of the card's unpaid balance.Credit insurance can be a financial lifesaver in the event of certain catastrophes. However, many credit insurance policies are overpriced relative to their benefits, as well as loaded with fine print that can make it hard to collect on. If you feel that credit insurance would bring you peace of mind, be sure to read the fine print as well as compare your quote against a standard term life insurance policy.Credit insurance may refer to:Trade credit insurance, purchased by businesses to insure payment of credit extended by the business,Payment protection insurance, purchased by consumers to insure payment of credit extended to the consumer,Credit derivative, financial instrument or technique designed to separate and then transfer the credit risk of an underlying loan.

BENEFITS OF CREDIT INSURANCEThe essential value of At radius credit insurance is that it provides not only peace of mind to the client, who can be assured that their trade is protected, but also valuable market intelligence on the financial viability of the clients customers (buyers), and, in the case of buyers in foreign countries, on any trading risks peculiar to those countries . As well as providing an insurance policy that match the clients patterns of business, we will establish the level of cover that can reasonably be afforded to the client for trade with each individual buyer, by analyzing the buyers financial status, profitability, liquidity, size, sector, payment behavior and location. To augment the information that At radius already holds currently on over 100 million companies worldwide we also take into account the valuable experience that our client may already have through previous trade with the buyer.

Theres much more to credit insurance, and our country-focused websites show the range of At radius services available to you and who to contact for more information and advice.Find out more about our credit insurance services in your local markets.

CONTROVERSY

In all types of insurance some claims are accepted and some are rejected. However, in the case of PPI, the number of rejected claims is high compared to other types of insurance. A primary reason for this is that, as with many forms of general insurance, the insurance is not underwritten at the sales stage; it is sometimes taken out by customers without careful consideration as to whether it is right for their circumstances, and without careful attention to the policy eligibility conditions. Individuals who seek out and purchase a policy without advice have little recourse if and when a policy does not benefit them. However, most PPI policies are not sought out by consumers. In some cases, consumers claim to be unaware that they even have the insurance.[4]As PPI is designed to cover repayments on loans and credit cards, most loan and credit card companies sell the product at the same time as they sell the credit product. By May 2008, 20 million PPI policies existed in the UK with a further increase of 7 million policies a year being purchased thereafter[citation needed]. Surveys show that 40% of policyholders claim to be unaware that they had a policy[citation needed]."PPI was miss-sold and complaints about it mishandled on an industrial scale for well over a decade."[5] with this miss-selling being carried out by not only the banks or providers, but also by third party brokers. The sale of such policies was typically encouraged by large commissions,[6] as the insurance would commonly make the bank/provider more money than the interest on the original loan, such that many mainstream personal loan providers made little or no profit on the loans themselves; all or almost all profit was derived from PPI commission and profit share. Certain companies developed sales scripts which guided salespeople to say only that the loan was protected without mentioning the nature or cost of the insurance. When challenged by the customer, they sometimes incorrectly stated that this insurance improved the borrower's chances of getting the loan or that it was mandatory.[7] A consumer in financial difficulty is unlikely to further question the policy and risk the loan being refused.Several high-profile companies have now been fined by the Financial Services Authority for the widespread mis-selling of Payment Protection Insurance. Alliance and Leicester were fined 7m for their part in the mis-selling controversy, several others including Capital One, HFC and Egg were fined up to 1.1m. Claims against miss-sold PPI have been slowly increasing, and may approach the levels seen during the 2006-07 period, when thousands of bank customers made claims relating to allegedly unfair bank charges. In their 2009/2010 annual report, the Financial Ombudsman Service stated that 30% of new cases referred to payment protection insurance. A customer who purchases a PPI policy may initiate a claim for miss-sold PPI by complaining to the bank, lender, or broker who sold the policy.[8]Slightly before that, on 6 April 2011, the Competition Commission released their investigation order[9] designed to prevent miss-selling in the future. Key rules in the order, designed to enable the customer to shop around and make an informed decision, include: provision of adequate information when selling payment protection and providing a personal quote; obligation to provide an annual review; prohibition of selling payment protection at the same time the credit agreement is entered into. Most rules came into force in October 2011, with some following in April 2012.CALCULATIONS

The price paid for payment protection insurance can vary quite significantly depending on the lender. A survey of forty-eight major lenders by Which? Ltd found the price of PPI was 16-25% of the amount of the debt.PPI premiums may be charged on a monthly basis or the full PPI premium may be added to the loan up-front to cover the cost of the policy. With this latter payment approach, known as a Single Premium Policy, the money borrowed from the provider to pay for the insurance policy incurs additional interest, typically at the same APR as is being charged for the original sum borrowed, further increasing the effective total cost of the policy to the customer.[10]Payment protection insurance on credit cards is calculated differently from lump sum loans, as initially there is no sum outstanding and it is unknown if the customer will ever use their card facility. However, in the event that the credit facility is used and the balance is not paid in full each month, a customer will be charged typically between 0.78% and 1% or 0.78 to 1.00 from every 100 which is a balance of their current card balance on a monthly basis, as the premium for the insurance. When interest on the credit card is added to the premium, it can become very expensive. For example, the cost of PPI for the average credit card in the UK charging 19.32% on an average of 5,000 each month adds an extra 3,219.88 in premiums and interest.With lump sum loans PPI premiums are paid up front with the cost from 13% to 56% of the loan amount as reported by the Citizens Advice Bureau (CAB) who launched a Super Complaint into what it called the Protection Racket.

PPI premiums as proportion of loan: cases reported[11]

Loan TypeLoan AmountPPI premiumPremium % of loanUnsecured personal loan8,9932,21725%Unsecured personal loan11,0005,13347%Hire purchase for car5,0592,15743%Hire purchase for car6,8952,31734%Unsecured loan5,60074413%Secured loan25,00012,12749%Secured loan35,00010,15029%Conditional sale for car4,3002,39456%When interest is charged on the premiums, the cost of a single premium policy increases the cost geometrically. The above secured loan of 25,000 over a 25-year term at 4.5% interest costs the customer an additional 20,221.74 for PPI. Money madeclare[12] calculates the repayment for that loan to be 138.96 a month whereas a standalone payment protection policy for say a 30 year old borrowing the same amount covering the same term would cost the customer 1992 in total, almost one tenth of the cost of the single premium policy.

PPI CLAIMSThis section contains instructions, advice, or how-to content. The purpose of Wikipedia is to present facts, not to train. Please help improve this article either by rewriting the how-to content or by moving it to Wiki varsity, Wiki books or Wiki voyage (July 2011)

Payment Protection Insurance can be extremely useful insurance, however many PPI policies have been miss-sold alongside loans, credit cards and mortgages. There are many examples of PPI miss-selling and as a result may leave you with PPI that is no use to you if you came to make a claim. Reclaiming PPI payments and statutory interest charges on these payments is possible in this case either by the affected borrower or by the use of a solicitor or claims management company.If the borrower at the time of the PPI claim owes money to the lender, the lender will usually have a contractual right to offset any PPI refund against the debt.[13] If there is any PPI value left over, then the balance will be repaid to the PPI Solicitor and or the client.The first ever PPI case was in 1992-94 (Bristol CC 93/10771). It was judged that the total payments of the Insurance Premium were almost as high as the total benefit that could be claimed. The case was proven and won. 10 years later, due to a non disclosure agreement a copy of the judgment was sent to the OFT and CAB. Soon after, a super complaint was raised.[14]The judicial review that followed hit the headlines as it eventually ruled in the favor of the borrowers, enabling a large number of consumers to reclaim PPI payments.STATISTICSThis section requires expansion.(November 2011)UK banks have set up multi-billion pound provisions to compensate customers who were miss-sold PPI; Lloyds Banking Group have set aside 3.6bn,[15] HSBC have provisions of 745m,[16] and RBS have estimated they will compensate 950m.[17] Payment Protection Insurance has become the most complained about financial product ever.[18]

HOW IT WORKS

Credit insurance protects your company against the failure of your customer to pay their trade credit debts owed to you. These debts that can arise as a result of that customer becoming insolvent or failing to pay within agreed terms and conditions (i.e. protracted default).How it works is simple: Euler Hermes network of risk offices monitors the financial performance and well-being of your customers. We allocate each of those customers a grade that reflects the health of their activity and the way they conduct business.Based on this risk assessment, each of your buyers is then granted a specific credit limit up to which you, the insured, can trade and be able to claim should something go wrong. This limit can be revised upward or downward as new information becomes available.Throughout the lifetime of the policy, we inform you of any changes that might impact the financial health of your buyers and their ability to pay you for goods or services you have delivered. In the event that your buyer cannot or will not pay you, you will be insured and indemnified up to the limit of your policy. We can also manage collection of the debt for you if/should the need arise.

WHY SHOULD YOU SUBSCRIBE TO B2B CREDIT INSURANCE?Trade receivables are one of the main assets on a companys balance sheet. With credit insurance, you can protect both your current and future cash flow as well as your profits, and free up resources to concentrate on more value added activities including new business.Fundamentally, credit insurance improves the quality of a companys bottom line through:Comprehensive protection against the risk of insolvencyEnhanced customer relationshipsImproved banking relationships and access to financeGreater confidence in pursuing commercial opportunities

THE 4 REASONS WHY CREDIT INSURANCE IMPROVES THE PROFITABILITY OF YOUR BUSINESS

Trade receivables can represent up to a third of the total assets on a companys balance sheet. Managing your trade receivables effectively therefore plays a key role in:

1. Delivering comprehensive protection against the risk of insolvency2. Enhancing your customer relationships 3. Improving banking relationships and access to finance4. Supporting sales expansion

1. CREDIT INSURANCE PROVIDES COMPREHENSIVE PROTECTION AGAINST THE RISK OF CUSTOMER INSOLVENCY

The positive financial impact of credit insurance is generated through:Improved Days Sales Outstanding (DSO) and on-time paymentsImproved business planning through the reduction of unknown riskReduced levels of bad debt and incidences of fraudHigher levels of repeat businessLower levels of customer queries and disputesMore profitable salesLower overall average costs of credit management.Credit management costs are lower because credit insured firms have access to better quality credit information and market intelligence that in turn drive better decision-making and reduce risk.How does it work?Credit insured companies (also known as policy holders) risks are insured by means of a credit limit on each of their customers or buyers. The Euler Hermes credit limit is an objective opinion on the financial condition of a buyer. It is based on expert knowledge and experience combined with sophisticated Euler Hermes underwriting systems that allow thousands of Euler Hermes credit limit decisions to be made daily. Every credit limit is monitored and adjusted if needed (when trade increases or if the buyers financial situation changes)2. CREDIT INSURANCE ENHANCES CUSTOMER RELATIONSHIPS

Companies who are credit insured benefit from the continuous monitoring by Euler Hermes of the financial situation of their customers and potential customers. Policy holders can therefore use this knowledge to increase the level of credit and therefore the level of trade for certain customers, thereby further strengthening the relationship.

3. CREDIT INSURANCE IMPROVES BANKING RELATIONSHIPS AND ACCESS TO FINANCE

Credit insurance generally helps companies gain greater access to bank funding, and on better terms, because their receivables are insured, which in turn impacts positively on cash flow.Credit insurance is more affordable and easier to administer than a letter of credit, and allows business to be conducted more freely on open credit terms, worldwide.It can also help the policyholder to qualify for larger credit lines against better terms.

4. CREDIT INSURANCE SUPPORT SALES EXPANSION

Credit insurance helps to support a more efficient credit management process, reducing administration costs and maximizing the recovery of unpaid debts. It enables credit managers to focus on more value-added activities, such as supporting their sales teams in the development of new commercial opportunities.

Please visit our Economic Research section to discover how our insights can help you make the right decision while entering new markets.

PAYMENT PROTECTION POLICY

POLICY COVER AND BENEFITS:The policy provides a settlement figure up to 10,000 in the event of your deathIf you have an accident or become sick, we could pay your premiums up to 1,000 a monthIf you become unemployed, we could pay your premiums up to 1,000 a monthWe could pay up to 12 monthly premiums, or to the end date if earlier, if you become a carerPOLICY EXCLUSIONSYour payments will not be covered if your sickness, accident or unemployment results from:Voluntary unemploymentUnemployment you are aware of at the start of coverSuicideHIV or AIDSMilitary, naval or air service outside the UKSelf-inflicted means such as alcohol consumption or drug abuse, dependence or self-harmPre-existing or chronic conditionsNormal pregnancy or childbirth-related conditionsPsychotic or psychoneurotic illness, mental or nervous disorder, stress or stress-related conditions

CANCELLING PAYMENT PROTECTION INSURANCEYou will have a right to cancel your payment protection policy and receive a refund for a period of 30 days from the date you receive your policy documentation (unless there has been a claim). This refund will be subject to a charge for the period of cover you have received, plus our reasonable administration charges.

PAYMENT PROTECTION INSURANCE COMPLAINTS PROCESSING

CLIENT SUCCESS STORY:

BACKGROUND:As a result of increased media attention surrounding sales of payment protection insurance (PPI), our client, a top six UK retail bank, was experiencing higher than usual levels of complaints. While initially the increase was dealt with by transferring internal resources, it was not felt that this was a sustainable solution, as volumes were continuing to increase. As a result Hunts wood was asked to supply experienced claim handlers to supplement the clients in house team.THE SOLUTIONWithin five working days of the initial request being received Huntswood had identified 20 appropriately qualified candidates who were immediately available. As soon as the client gave authority to proceed, the Huntswood team of experienced case handlers and team leaders were deployed to the client site. The aim of the project team was to process PPI complaints, consistently, fairly and in accordance with regulatory guidelines, while adhering to the clients own internal processes, procedures and service levels, and: To improve and maintain customer relations between the client and its customers To mitigate any regulatory risk in relation to breaches in the complaint handling process To protect the brand reputation of the bank in the marketplace and with its existing customer base To confirm eligibility, suitability and product disclosure The client delivered initial training to the Hunts wood team and has continued to supply technical support throughout the early stages of the project. Hunts wood worked with the client to adapt the terms of the training and competency scheme to meet both regulatory requirements and the needs of the project

THE RESULT:The Hunts wood team quickly learnt the banks processes and procedures, establishing a best practice approach and subsequently producing internal guidance notes. Productivity increased beyond the original forecasts and feedback on quality and the volume of cases being processed has been excellent. As the project progressed, Hunts wood has also undertook quality assurance (QA) checking, to supplement the clients internal QA resources, as the team leaders continue to manage workload, workflow, productivity and performance. Hunts wood has continued to identify suitable additional resources, allowing the client to increase the size of the project team and the key stakeholders are confident that the project will fulfil key project objectives within agreed timeframes. Hunts wood has also provided additional resources to handle high profile PPI complaints that have been referred by the FOS, as well as undertaking a discreet review of previously declined PPI claims. Feedback on the speed of Hunts woods response has been excellent as the ability to quickly mobilize a suitably qualified and experienced team was a key criteria for this client when electing to engage Hunts wood.

EULER HERMES CREDIT INSURANCE SOLUTIONSEvery time you grant credit to your customer for the goods or services you provide, you expose yourself to the risk of unpaid debts. With trade credit insurance (also called accounts receivable insurance), you can protect your cash flow and your future profitability while growing your business.Euler Hermes provides customized trade credit insurance solutions to suit every business type.Contact your nearest Euler Hermes office to discover more about our products and services.SMALL COMPANIESOur solutions are easy to set up and administer to protect every size of company against unpaid debts.Our solutions EASY POLICY MANAGEMENTDiscover how to easily access and manage your policy using the Euler Hermes 24-hour secure internet portal.> Discover EolisCredit insurance solutions are not only designed for larger businesses. Regardless of turnover size, protecting your business from the risk of non-payment is essential. With credit insurance, you can protect both current and future cash flows as well as your profits and concentrate on what you do best: running your business.

Smaller businesses often have resource constraints and specific needs. Your business is your priority and you need clear, practical and easy-to-use solutions.

You may think that credit insurance is too costly or difficult to manage. You may think that self-insurance is a better alternative. But this is rarely the case.

Our experts have designed solutions that specifically address the needs of smaller businesses. These solutions are:Easy-to-understand, set up and administerProvide the degree of protection that small businesses demandDeliver true peace of mind against the risk of non-paymentEnable you to benefit from our global network of risk expertise.Help you to continue growing your business.We can be a partner in your companys future success.HOW CAN A EULER HERMES DEDICATED SOLUTION SUPPORT YOUR SMALL BUSINESS STRATEGY?A customized credit insurance policy benefits your business when:You need to preserve profitabilityYou want to take on new business and be certain you will be paidYou want to continuously track the financial situation and creditworthiness of existing and potential customersYou need detailed information about commercial risk Your business environment is highly competitive and you need a strong and stable AA- rated partnerYou are thinking about expanding operations domestically and/or around the worldLearn more about our country-specific credit insurance solutions dedicated to small companies.

MEDIUM AND LARGE COMPANIESA complete customized solution provides coverage of all of your trade receivables. Our solutions EASILY POLICY MANAGEMENTDiscover how to easily access and manage your policy using the Euler Hermes 24-hour secure client internet portal.Credit insurance helps you grow your business safely and profitably, reducing the risk and potential damage caused by a sudden insolvency of your customers.By managing a credit insurance policy effectively, your credit managers can deliver a range of benefits including:

Maintaining profitabilityControlling outstanding expensesMinimizing administrative costsImproving budget forecast accuracyHaving a clearer view of customer and prospect risksSecuring better short-term financing terms from banks. Your sales teams also benefit through:Focusing their time on leads that present a better and safer business opportunity Creating and leveraging longer-term relationships with clientsGreater visibility of the credit-worthiness of existing customers when accepting new orders

HOW DO EULER HERMES CREDIT INSURANCE SOLUTIONS WORK?

Euler Hermes credit insurance solutions include:

Trade credit Flexible international trade credit insurance solutions to protect you from the risk of non-paymentWorldwide risk monitoring Our unique proprietary worldwide risk information database helps you make the best-informed decisions about the companies with whom you workExperienced risk experts - Our network of risk experts located in over 98 risk offices means were closer to your operations and have a deeper understanding of your businessInternational debt collection Our specialist collection teams help you to recover outstanding debtsEconomic research - Our in-house economists constantly analyze economic trends to give you insights to support your business needsOnline solutions - You save time and improve risk management efficiency by using our online solutions and specifically our online customer portal EOLIS.

MULTINATIONAL COMPANIES

When you have operations around the world and need a global solution for all your subsidiaries, we provide an integrated, centralized policy that share the same basic terms.

SOLUTIONSEuler Hermes has a dedicated team to service multinational clients: the Euler Hermes World Agency (EH WA).

The Euler Hermes World Agency structure draws on the strength of Euler Hermes business model:A global network of well-established local subsidiaries interconnected by shared information, risk underwriting and account management excellenceRisk and commercial underwriting and all operational processes are supervised, streamlined and harmonized worldwide.Our teams are located in six core regions, ensuring superior service by operating in the same local context and culture as your business uniWHAT DOES EULER HERMES ts.WORLD AGENCY OFFER CUSTOMERS?

Dedicated service team with oAn account management team delivers personalized services at every leveloAccess to a network of strategic risk underwriters located in the countries of your operating entitiesTailor-made World Program :oContractual terms specific to each countryoA consistent decision making authorityoDedicated consolidated risk management reporting services (EH World Program Management Toolbox)Value-added online tools such as EH SmartLink, which enables Euler Hermes credit insurance solutions to be integrated into your companys systems and automated processes

Experienced risk experts - Our network of risk experts located in over 50 countries means were closer to your operations and have a deeper understanding of your business

International claims and collections Our specialist collection teams help you recover outstanding debts.In addition, you benefit from Euler Hermes comprehensive risk underwriting expertise and the unparalleled know-how: our in-house economists, who constantly analyze economic trends for the insights to support your business needs.

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