Taking a closer look at the perils of credit insurance

Apr 01, 2009 | 04:13 AM |

Given the current downturn, credit insurance can sometimes be useful as an early warning system—even when you don't receive a check.

"We weren't caught by Aleris at all," said one scrapyard executive, referring to the February bankruptcy filing by Aleris International Inc., Beachwood, Ohio. He tipped his hat to the German-based underwriter that provides his coverage against unpaid bills caused by financial woes. "They're tightening up on the amount that they're willing to insure, but they are good in the sense that they will notify you," he said.

"They cut the amount of Aleris coverage in half back in December.," he added. "We were very cautious after that because Aleris was so slow with payments. Once we got paid (by Aleris) we decided to wait and see, even though we had some open orders with them in January. After the insurance was canceled, we didn't ship."

Another recycler, though he buys such coverage, perceives credit insurers as likely to add undesirable momentum to the upswings and downswings of the economy—and secondary smelting in particular. "(Lenders') credit lines aren't available even for viable, strong companies," he said, "so the credit insurers are listing almost nobody these days" among consumers of aluminum scrap. ....