Today, in the world of International Business or Global Trade all countries are dependent on export and import of goods and services across international boundaries. However, all business transactions come with risks. When those risks involve dealing with companies overseas, the value and importance of sound Export-Import Insurance policies become ever more noticeable.
What is Export Credit Insurance?
A type of insurance which protects a company if a foreign buyer does not pay for exported goods is known as Export Credit Insurance. Export Credit Insurance (ECI) protects an exporter of products and services against the risk of non-payment by a foreign buyer. If one’s company is an exporter or importer – or both – then having the relevant insurance cover in place is essential to ensure the continuing success of the company in the future.
As international trade presents multiples risks ECI can be the perfect way to help exporters in solving this problem and focusing on their core business. Luckily, there are many ways one can invest in peace of mind. Export insurance, in its various forms, can not only make one more comfortable about doing business overseas, it even allows one to focus on, and grow their business internationally.
Types of Export Credit Insurance:
There are various kinds of Export Insurance which vary from country to country. There are five different kinds of insurance generally used worldwide will be discussed.
Credit insurance, or trade credit insurance, is the most popular form of export insurance. Suitable for any business that extends credit to their overseas buyer, credit insurance covers the risk of your buyer becoming insolvent or unable to pay the money owed to the exporter. “Credit insurance will be able to offer up to 95% recovery to what was owed.”
Political Risk Insurance
Political Risk Insurance (PRI) is another type of coverage exporters need to consider, particularly in emerging countries. In PRI, the overseas government intervenes in exporter’s investments, which could be the goods exported or any assets or business one has in another country.
It is regarded as one of the most crucial insurance for goods exporter. Financial protection of the shipment of products and goods is insured, regardless of whether the mode of transport is over the water, air or land.
Various foreign exchange management strategies an exporter can use to reduce losses through currency movements. Some financial institutions and foreign exchange providers also offer currency insurance against conversion loss.
Product Liability Insurance
An international product liability insurance product is similar to a domestic one and involves covering the risks arising from legal action or the cost of recall should the product you sell be proved faulty or fail to comply with appropriate regulations.
Benefits of Export Insurance
- Reduces the risk of non-payment by foreign buyers
- Gain access to overseas working capital
- Increased competitiveness
- Improved cash flow by borrowing against foreign receivables
Export Insurance gives assurance and flexibility to one’s business. It is always recommended to use Export Insurance for cover risk and maximise upside. Companies who opt to use an export credit insurance benefit through being able to export more while also having peace of mind that their invoices will be paid.