Introduction:
Export Credit Insurance, Exporters are expected to protect their business against the risk. There can be risk of nonpayment for many reasons. When foreign buyers are unable to pay Export Credit Insurance can help you save your business.
What it coves:
There are two type commercial risk and political risk. Export Credit Insurance covers both the risk. Commercial risk Insolvency of buyers, bankruptcy, protracted defaults / slow payment. It also covers political risk war, terrorism, riots, and revolution.
Key points:
Allow exporters competitive open accounts terms to buyers while minimizing risk.
With reduced risk, exporters can do more export sales.
Establish market share in emerging and developing countries.
More vigorous competition on Global market.
Credit worthily buyers may default due to circumstances.
When foreign receivable are insured lenders are more likely to fund export. They will offer more attractive finance terms.
Export Credit Insurance do not cover damage during the shipment or any risk that is covered already by insurance other form of insurance.
Export Credit Insurance Characteristics:
Risk:
In case of noncompliance exports assumed the risk of uncovered portion of the losses and claim may denied.
Applicability:
Recommended for use in conjunction with open account terms and pre-export working capital financing.
Pros:
Reduces the risk of non-payment by foreign buyers offers open account terms safely in the global market.
Cons:
Cost of obtaining and maintaining an insurance policy. Risk sharing in the form of a deductible (coverage is usually below 100 percent).
Coverage:
There are two types of coverage, short terms and midterms coverage. Short terms 90 to 95 % coverage against commercial and political risk for 180 days it can extent up to 365 days. and…
Midterm coverage, up to 85% coverage of net contract value, capital equipment up to 5 years. The cost of insurance in included in costing.
Where can you get Export Credit Insurance?
This type of insurance is offered by many private commercial companies as well as import export Banks. In our next article we will give reputable and trustworthy companies list. insurance brokers registered with EXIM is available at www.exim.gov
Export Credit Insurance Private-Sector:
Based on risk factor the premium is calculated, and more discount for experience exports.
Most multi-buyer policies cost less than 1% of insured sales, whereas prices may higher for single buyers.
Flexible and discretionary credit limits offered by commercial insurance companies.
There is no restriction regarding foreign content or military sales.
EXIM Bank’s Export Credit Insurance:
where private insurers may not operate coverage is available in riskier emerging foreign markets.
EXIM customers are advised to refer to the Exposure Fee Information & Fee Calculators section (which are posted on the Bank’s Web site www.exim.gov under the “Apply” section) to determine exposure fees (premiums).
Enhanced support is offered for environmentally beneficial exports.
Exporters electing an EXIM working capital guarantee may receive a 25 percent premium discount on multi-buyer insurance policies.
EXIM is unable to support military products or purchases made by foreign military entities.
Support for exports may be closed or restricted in certain countries for U.S. government policy reasons (for more information, see the Country Limitation Schedule posted on the Bank’s Web site under the “Apply” section).
The products must be shipped from the United States and have at least 50 percent U.S. content.
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