Centralized credit insurance
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In the centralized common way, the risk is managed through credit insurance companies. Credit insurance aims to guarantee the collection by a natural or legal person of the credits in his favor when the default of payment occurs due to the insolvency of his debtors.
The insurer acts as a risk management department: it studies, analyzes, and classifies each candidate and notifies which commercial credit lines are covered by the credit insurance and up to what amount. The insurer also sets interest rates and fees to apply based on their studies.
By getting insurance, creditors pay a fee but feel secure in case of default.
You can find how it works in the following schema:
