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3071. The Value of Lender-Initiated Loan Credit Insurance in Supplier Financing
Invited abstract in session MB-57: Decision making in Insurance and Pensions, stream Modern Decision Making in Finance and Insurance.
Monday, 10:30-12:00Room: S06 (building: 101)
Authors (first author is the speaker)
| 1. | Hechen Zhong
|
| 2. | Nina Yan
|
| Central University of Finance and Economics | |
| 3. | Jizhou Lu
|
| 4. | Kin Keung Lai
|
| International Business School, Shaanxi Normal University |
Abstract
Supply chain finance (SCF) solutions facilitate access to financing for small and medium-sized suppliers. However, in volatile market conditions, payment defaults among supply chain participants can affect the stability of SCF systems. To effectively mitigate default risks, financial service providers often purchase loan credit insurance (LCI) to transfer potential losses to insurers. When retailers cannot repay or default on their payment obligations, insurers will compensate the lender within the policy terms. Using a game-theoretical approach, we assess the value of LCI for the lender and the capital-constrained supplier. Our analysis reveals that the lender can benefit from LCI when the insurance deductible is relatively high, and the insurer's loading factor is relatively low. The capital-constrained supplier with higher capital investment and lower unit production cost can also benefit from LCI. Furthermore, when the insurance scale and loading factor are low, the supplier is more likely to increase profitability. However, the supplier can achieve superior investment efficiency in scenarios with higher insurance scale and loading factor, suggesting increased capital investment to benefit from LCI better. These findings underscore the value that the lender-initiated LCI can bring to capital-constrained suppliers, offering significant insights for small and medium-sized suppliers and financial service providers engaged in SCF practices.
Keywords
- Game Theory
- Supply Chain Management
- Finance and Banking
Status: accepted
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