What Experts Think

What is Export Insurance, Who Needs it and Why?

By November 26, 2018 No Comments

What is Export Insurance, Who Needs it and Why?Export credit insurance (ECI) is a type of trade credit insurance tailor made especially for exporters of goods and raw materials. International trade with foreign buyers is often a complex undertaking. Niche Trade Credit (NTC) offers policies with the export trade in mind. Payment risk associated with shipping raw materials and products to customers can represent a real danger to an otherwise well-managed import/export firm or similarly situated business.

There are several common reasons why payments for exports are not made. Our insurance product is specifically designed to hedge against these risks. ECI incorporates the value of our other offerings such as political risk insurance or trade credit insurance but limits the scope to exports. The coverage allows more versatility and specificity for those who wish to limit their exposure while controlling the costs. You can rest assured that the trust you place in a foreign buyer is well insured with NTC.

If you are considering exporting to a foreign market, NTC encourages you to consider some key points;

  • Does the buyer prefer to trade on open accounts or a documentary trading basis instead of a letter of credit?
  • How stable are the import and/or export licenses?
  • What is the likelihood of contract repudiation?
  • What is the probability for the rejection of goods?
  • Have you considered non-payment for reasons of government intervention associated with political risk?
  • What is the financial health, history and credibility of the importer?

Any one of these factors, among others, can spell disaster for an exporter. Shipments of products or raw materials often represent a concentration of capital. Depending on the complexity or rarity of the products, a supplier could conceivably be wholly depending on payment for a single shipment to remain viable.

Australia’s largest export is iron ore making it the world’s leading exporter at 58%. China leads the world for iron ore imports at 57.1 billion per year. The trend to export into markets subject to lacking infrastructure and alien regulations only serves to aggravate the risks. With prices of livestock flat lining globally, Asian markets represent an opportunity for growth as well. The danger to stable import and export licenses is historically high in this region. Ever changing regulations, politically motivated or genuine, also represent instability for exporters.

Export trade represents opportunities for growth in an ever more competitive global market. Failing to factor the risk has cost many companies more than they could afford. If you export to companies without letters of credit, we suggest you make a call to NTC as soon as possible to discuss a policy that is right for you. ECI does more than mitigate the risks associated with nonpayment, refusals and other threats to your accounts receivables. It is also a powerful sales tool helping to instill confidence in potential foreign trading partners. Additionally, ECI is often a prerequisite when seeking financing for export operations and related infrastructure. The key is to balance the risk and the cost expertly. Varying levels and types of specific coverage to successfully mitigate risk but remain highly profitable is a challenge we at NTC pride ourselves in meeting. The goal is to offer the minimum cost for the greatest risk mitigation.

The need and utilization of export credit insurance brokers is becoming more relevant each day. Policyholders for credit insurance are projected to grow in 2018 by 3.2%. Some of the reasons for the increased use of this product are clear;

  • It allows for competitive new account terms despite the risk of nonpayment by foreign buyers.
  • Reduced risk of non-payments equates to increased sales and market opportunity in volatile regions.
  • ECI can increase borrowing and lending capabilities for exporters doing business in foreign and emerging markets.

If you are an exporter the opportunities can be lucrative and numerous. Yet, the risk also increases with your export exposure. Our professionals advise exporters to keep the following checklist in mind to mitigate that risk;

  • Define the areas where you incur export risk.
  • Develop a risk management matrix by listing the risks and management strategies.
  • Discuss your risks and strategies with colleagues, financiers and NTC.
  • Review your export risk management profile regularly.

NTC is waiting to find the policy right for you. We consider many factors when proposing ECI. Our goal is to offer the best policy for your situation. These can vary by term length, risk, experience level of the exporter and more. The cost associated with ECI is often less than the price to secure letters of credit. Contact us today and we will work hard to craft the policy that best fits your business.

*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.

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