Primer: A Look at Credit Risk Insurance

Credit insurance protects lenders and businesses against losses from borrower or customer nonpayment. In this Q&A, Kevin Humphrey, managing director, trade credit & political risk, at Brown & Brown, explains how the product works in practice and where it fits within modern bank lending. He discusses why adoption differs between the U.S. and Europe, and how credit analysis done by insurers can complement the work of banks. The conversation also explores the role of credit insurance in supporting lending growth while managing risk. 

ProSight: Define “credit insurance.” Does it mainly relate to trade credit? 

Humphrey: Trade credit is a major piece, but not the whole picture. In banking, credit insurance can also cover borrower risk or off taker risk outside traditional trade contexts. In practice, people use “trade credit insurance” and “credit insurance” interchangeably, even though applications are broader. 

ProSight: Who typically buys the insurance—the bank or the borrower? 

Humphrey: Both structures are common. Sometimes the borrower buys the policy and names the bank as loss payee. In other cases—especially structured or portfolio‑level deals—the bank itself is the insured. The structure depends on the transaction and the bank’s goals. 

ProSight: How does this work in a typical U.S. lending scenario? 

Humphrey: In asset‑based lending, banks often exclude certain receivables due to concentration or cross‑border risk. When those receivables are insured, banks may allow them back into the borrowing base, improving liquidity while maintaining a secondary source of repayment. 

ProSight: Why are foreign receivables usually excluded without insurance? 

Humphrey: Banks generally can’t perfect or enforce security interests across borders. Even with local counsel, recoveries tend to be minimal in a foreign bankruptcy. Insurance provides protection where legal remedies are weak. 

ProSight: Does credit insurance encourage banks to take more risk? 

Humphrey: No. Banks still apply the same underwriting standards. Insurance simply adds another layer of protection, allowing banks to support lending growth while staying within their risk appetite. 

ProSight: How do insurers underwrite these risks? 

Humphrey: Large insurers use robust internal credit‑scoring models and portfolio criteria. Banks can rely on insurers’ credit analysts as a complement to their own teams, in some cases effectively outsourcing counterparty risk assessments. 

ProSight: Who gets paid if there’s a loss? 

Humphrey: It depends on who is insured. If the borrower is insured, they file the claim and the bank receives proceeds as loss payee. If the bank is insured, the bank controls the claim. In that case, the borrower’s benefit is increased liquidity rather than insurance proceeds. 

ProSight: How do you position credit insurance in the U.S. banking market right now? 

Humphrey: Credit insurance remains significantly underutilized in U.S. banking. While it’s widely used in Europe, most U.S. banks are unfamiliar with it as a credit‑risk management tool. There’s little institutional muscle memory, which creates an education gap.  

ProSight: Why has the product taken hold in Europe but not in the U.S.? 

Humphrey: Europe has over a century of experience integrating insurance into banking and trade finance. Banks and insurers often coexist under common holding companies, and cross‑border trade exposure is routine. In contrast, U.S. banks historically relied on letters of credit, collateral, and guarantees and were shaped by Glass‑Steagall. Those differences produced very different risk cultures and operating habits. 

ProSight: Is capital relief the main modern use case in Europe? 

Humphrey: Since around 2015, yes. As Basel III took hold and insurance gained recognition in certain structures, European banks increasingly used credit insurance to manage capital while maintaining client relationships. 

ProSight: Economically, does it only make sense if banks get capital relief? 

Humphrey: No. Banks may use credit insurance purely as a risk mitigant. It can support higher lending limits, improve portfolio stability, and enable more lending to existing clients. Capital relief is a benefit, but not the only rationale. 

ProSight: How much of the difference in adoption in the U.S. is about regulatory capital treatment? 

Humphrey: Capital treatment matters, especially after the financial crisis and Basel III, but it isn’t the full explanation. Credit insurance was widely used in Europe long before regulators allowed it to substitute for capital. Regulatory recognition accelerated adoption, but it built on an already established practice. 

ProSight: Is regulatory uncertainty the biggest barrier to adoption in the U.S.? 

Humphrey: It’s a barrier, but not the biggest one. Even without capital relief, there are solid risk‑management reasons to use credit insurance. The larger issue is unfamiliarity—banks don’t see peers using it, so they’re reluctant to be first movers. 

ProSight: What’s the biggest obstacle to U.S. adoption today? 

Humphrey: Lack of precedent. Banks want to see other banks using it successfully before adopting it themselves. Even though it isn’t prohibited, there’s a learning curve and most institutions don’t yet have internal experience with the product. 

ProSight: Are efforts underway to change regulatory recognition in the U.S.? 

Humphrey: Yes. There have been lobbying and policy discussions for several years aimed at educating regulators and improving recognition, but progress has been gradual.