What is Export Credit Insurance?

Export credit insurance is at type of insurance protection that helps to cover losses incurred by exporters when buyers either refuse acceptance or do not pay for orders that are shipped to other nations. Depending on the scope of the coverage, this type of trade credit insurance may also provide at least some protection in the event that a buyer becomes insolvent after the order is placed and shipped, and files for some type of bankruptcy protection. Many exporters carry this type of insurance for any type of business transaction that is not covered by some other means of ensuring compensation in the event that payment for an order is not forthcoming.

Securing export credit insurance does offers some benefits, but there are also some potential liabilities with the plans. In terms of advantages, the insurance does offer protection when other avenues of safeguarding the payment process are not readily available. In some cases, the coverage functions as a back up method even if there is a letter of credit from the buyer’s bank, or some sort of similar arrangement. Securing the insurance makes it easier for the level of risk to be kept within a limited range, which in turn increases the chances of the exporter remaining a profitable business enterprise.

When it comes to disadvantages, export credit insurance may or may not be available in all situations. For example, the terms of the coverage may only extend benefits in the event that the buyer in question meets specific criteria set by the insurance provider. This can somewhat limit the exporter in the ability to accept orders from certain types of customers, either based on the client’s location or some other set of factors. Providers of export credit insurance are also likely to require careful accounting in all export accounts in order to protect the issuer from possible insurance fraud attempts. One final liability is that if the buyer indicates that the reason for non-payment is some sort of dispute with the seller on the terms of the sale or the quality of the goods delivered, the export credit insurance provider is highly unlikely to pay until the issue is resolved.

While there are pros and cons related to the purchase of export credit insurance, sellers often find the benefits outweigh the liabilities in the long run. The premiums for the coverage can sometimes be quite expensive on the front end, but the scope of coverage provided often offsets the cost. As with any type of insurance, sellers can compare plans and rates with difference providers and find the insurance plan that provides the best range of coverage for the lowest premium possible.