Export Credit Insurance: What It Is and What It Covers

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Export credit insurance is a type of coverage that protects a seller or exporter of products and services against the risk of not getting paid by a foreign buyer.

Export Credit Insurance: What It Is and What It Covers

It helps to reduce the payment risks that are associated with doing business internationally. By giving exporters assurances that they will be paid if the foreign buyer is unable to make payment.

Export credit insurance is offered either on a portfolio multi-buyer or a single buyer basis for a short period of time (up to 1 year). And medium-term (1–5 years) repayment periods.

Furthermore, it protects the seller from things that are outside or within the buyer’s control. With this option, exporters can increase export sales, establish markers in developing countries, and compete more in markets globally. 

Even creditworthy foreign buyers may default on payment due to different situations beyond their power. However, with export credit insurance, exporters have nothing to worry about.

What Does Export Credit Insurance Cover?

Just like I have mentioned above, export credit insurance can help exporters protect their foreign deliveries or receivables against various risks that could result in nonpayment by the foreign buyers.

Generally, ECI covers commercial risks such as bankruptcy, insolvency of the buyer, or slow payments. And other potential risks such as war, revolution, riots, and war that could result in non-payment.

Also, it covers expropriation, inconvertibility, and changes in export or import regulations. However, it won’t cover physical damage or loss to the goods shipped to the buyer or any other risk that coverage is available through fire, marine casualties, or other types of insurance.

The most common types of export credit insurance include exchange risk, short-term export credit, medium- and long-term export credit, investment, and external trade insurance.

  • Short-term ECI: It offers 90–95% coverage against political and commercial risks that result in foreign buyer payment defaults. It typically covers consumer goods and services for about 80 days. And small capital goods, bulk commodities, and consumables are durable for up to 360 days.
  • Medium-term ECI: It provides 85% coverage of the contract value. It typically covers large capital for up to 5 years.

The cost of ECI is often incorporated into the selling prices by exporters. And it should be a proactive purchase, and exporters should get the coverage before a client becomes an issue.

Benefits of Export Credit Insurance

Just like I have mentioned above, this policy will help protect exporters from losses from insured export results. Here are some of the many benefits exporters will enjoy:

  • It provides exporters or sellers with payment certainty.
  • Offers coverage for markets that private insurers may not be able to cover.
  • It allows exporters to provide competitive open accounts to their foreign buyers while minimizing non-payment risks.
  • Lenders will be willing to increase the exporter’s borrowing power and attract more financing terms.

Apart from reducing risks, this policy also gives exporters additional control. There will be significant room for diversity in the export industry. Export insurance policies are made to be as special as the products and company they are covering.

Who Needs Export Credit Insurance?

Businesses that are involved in exporting should consider this policy in order to reduce risks in ways they might not expect.

Unlike business or marine insurance, this exporting policy is specifically designed to offer the most comprehensive protection for international trade.

Most business insurance doesn’t cover international shipments, and marine insurance may not cover all cargo on a vessel.

Just so you know, even cargo insurance doesn’t protect against buyers failing to pay once goods are delivered.

Given the constant change in political and trade regulations, export insurance offers essential coverage when it’s needed most. As an individual involved in exporting businesses, you should consider this policy.

Where Can I Get Export Credit insurance?

Most private commercial insurance companies and the Export-Import Bank of the United States (EXIM) offer these policies. EXIM is a government agency that helps finance the export of United States goods and services.

U.S. exporters should look for a specialized insurance broker to find the best deals.

You can easily find reputable companies selling these export policies online or buy them directly from EXIM. For more information, visit www.exim.gov to check out the list of registered insurance brokers.