Excess of loss coverage concepts (XOL)

The XOL coverage concept fundamentally distinguishes itself from the classic credit insurance solution in that it only covers bad debts that can endanger the existence of a company, or can at least have a significant impact on its earnings situation. For this reason, the XOL solutions are also referred to as “catastrophe coverage.”

Just as decisive for these excess of loss solutions, which are more similar to reinsurance, is the fact that the customer’s credit check is largely completed by the insured company itself. In an individual check, the XOL supplier only validates the credit risk of the largest individual risks.

The XOL coverage is perfect for companies that have installed a professional credit risk management function and have anchored this in their own credit guidelines. Beyond that, the company must be able to show that – based on its own bad debt history – the credit risk management had led to a correspondingly low default rate. Within the scope of an audit, the XOL supplier verifies the company’s internal credit risk management system. In case of a positive review, these regulations then become a part of the contract between the company and the XOL supplier.

The top-up cover solution – as a complement to an existing classic credit insurance – has the objective of absorbing potential insufficient coverage into the primary insurance and in this fashion increasing the overall coverage rate.