If you’re new to the world of importing and exporting, or you’d simply like a refresher course on the different types of insurance coverage available to your company, you’re in the right place. When it comes to insurance, exporters have many options. Export credit agencies are able to protect you against the risk of non-payment by a foreign buyer. So regardless of whether you’re in the import or export business there are insurance companies with an array of buyer credit options available to you.
There are a lot of different insurance products out there for companies engaging in international trade, and it’s important to know which ones you need for your business, and which insurance company has the right services for you.
Marine insurance is carried by every major seagoing transportation provider who engages in international trade, and is purchased through an insurance broker. In almost every case, it is not purchased by an importer or exporter. Instead, this type of insurance is purchased by the transportation company and forms a crucial part of their risk management. This insurance protects their vessel and all of the cargo, personnel, and other assets that are located on the vessel.
In the event that a vessel sinks, or another disaster strikes which causes delays, the destruction of cargo, or another covered loss or damage event occurs, the marine insurance policyholder files a claim with their insurance provider.
Then, once the claim is processed, the insurance covers your loss, up to a specified amount. Usually, compensation will be for about three-quarters of the value of your merchandise or lost cargo.
Marine insurance alone may not cover the entire value of your shipment. It’s often paid out on a per-pound basis, so you may need additional coverage to protect your cargo or freight.
In addition, marine insurance will not cover damage to your cargo due to improper loading by a transit company, or for incidents that occur outside of a marine-based environment.
This is where cargo insurance comes in. Cargo insurance is used to protect your shipment of products throughout the entire journey to a customer. For example, if a crane breaks and drops a shipment of expensive electronics, or the shipment was improperly secured by the company responsible for transporting it, your cargo insurance will cover your loss.
One of the main benefits of purchasing a separate cargo insurance policy is that it does not require proof of fault. That is, you do not need to prove that a transportation carrier or another party was at fault for the damage – only that the damage or loss actually occurred.
Because marine insurance won’t cover the whole cost of your cargo, it’s typically recommended that exporters cover every one of their shipments with cargo insurance. It’s the best way to safeguard against loss and damage of your products – no matter who causes the loss or damage.
Trade Credit Insurance
Trade credit insurance, sometimes also called export credit insurance or export trade insurance, is a very useful type of import-export insurance. It can help protect your short-term cash flow, by ensuring that you are still compensated if one or more of your customers fail to pay their invoices on time.
The way it works is simple. When you purchase a trade credit insurance policy, you can choose to insure certain transactions or customers, or pay a flat, percentage-based rate to insure all of your accounts receivable.
Then, your business continues normally. You sell your products and services, and your customers pay you based on standard trade credit terms, such as Net 30, Net 60, or Net 90 days from delivery.
But, if a customer fails to pay on time and enters a protracted default, goes bankrupt, or otherwise does not pay, despite the terms of the contract being honored, your trade credit insurance policy will pay you a percentage of the invoice value as compensation.
This helps you mitigate short-term payment risks, and extend lines of credit to new customers without the fear that they will be unable to pay. Whether you’re exporting to the United States, or a new, developing market, trade credit insurance can protect you from financial losses due to non-payment by your customers and clients, both foreign and domestic.
Political Risk Insurance
Political risk insurance is very useful for any company selling their product or services overseas in emerging markets and developing countries. As the name implies, it protects your company from political risks – upheaval, the seizure of private property by the state, currency inconvertibility, cancellation of an import license and any number of other events.
Often, political risk insurance is purchased as part of a trade credit insurance policy, particularly if an exporter is working with a new customer in a developing country. Trade credit insurance helps protect you from loss and default if a private company or customer does not pay – while political risk insurance helps protect you from government actions, civil unrest, and other risks that may be present in a still-developing country.
Political risk insurance is a must-have for any exporter or company with significant assets in another country, where political unrest could threaten their continued success, and result in significant financial losses.
Know What Your Options Are As An Exporter – And How To Protect Yourself!
Beyond these four types of policies, there are many other ways you can safeguard yourself and protect your profits – from product liability insurance to letters of credit, bank guarantees and more.
So, how are you supposed to make sense of it all? Contact the experts at Niche Trade Credit. We’d be happy to discuss all of your options for export insurance policies, and which ones may be right for you.
*DISCLAIMER: No person should rely on the contents of this publication without first obtaining advice from a qualified professional person. This publications sold on the terms and understanding that (1) the authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any error in or omission from this publication; and (2) the publisher is not engaged in rendering legal, accounting, professional or other advice or services. The publisher, and the authors, consultants and editors, expressly disclaim all and any liability and responsibility to any person, whether a purchaser or reader of this publication or not, in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication. Without limiting the generality of the above, no author, consultant or editor shall have any responsibility for any act or omission of any other author, consultant or editor.