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Why is Insurance Important in Trade?

Commercial trade insurance is critical for businesses in today’s competitive global economy. Insurance for trade and commerce enables businesses to create a robust risk management policy, while trade credit insurance protects them from customer bankruptcy and instability that can occur in foreign countries. There are several different types of insurance for trade and commerce that protect companies from specific issues and circumstances. Below, we’ll discuss the importance of insurance for trade and what the different types of insurance are for commerce. 

Trade Insurance Gives Organisations Financial Stability

Overall, credit insurance is critical for protecting a company’s bottom line from financial and organisational instability. Liability issues can quickly arise and lead to bankruptcy for the business and the owners. Entrepreneurs and startups should be aware of the importance of trade insurance before they start a business.

  1. Liability Insurance

Legal action from suppliers, business partners, and customers can expose a business to a range of risks, including bankruptcy. Liability insurance aims to protect companies from these specific risks that arise when someone tries to sue the business. Liability insurance is further broken down into several types:

  • General Liability: This type of liability insurance protects a company from financial obligations that happen because of negligence, personal injury, property damage, and other risks. 
  • Product Liability: Product liability insurance protects a company from financial issues that happen if someone is hurt because of a company’s unsafe or faulty product. 
  • Errors and Omissions: Errors and omissions insurance protects businesses from malpractice claims against clinicians, specialists, consultants, and other medical personnel. 

Without these types of liability insurance coverage, a business owner is personally liable for these types of litigious debts. Without trade insurance, a business owner could have their personal credit destroyed from litigation. 

  1. Property Insurance

If a business owns buildings, a company must have commercial property insurance coverage. Companies that rent their office space will also need renters insurance, another type of property insurance. These policies will protect a business from financial problems that happen if a fire breaks out, or if a building experiences hail or water damage. Property insurance also protects a business from economic issues that occur from acts of vandalism. 

An insurance broker may also encourage a business to purchase a peril-specific policy. This covers an individual business from certain risks that they may be more likely to experience. These policies also allow companies to exclude a high-risk item or items from an all-risk insurance policy. 

  1. Commercial Auto Insurance

For businesses that use vehicles as a part of their operations, they must be protected with commercial auto insurance coverage. Any productive vehicle, such as a delivery truck, company car, or construction vehicle that is critical for the company’s operations can be covered in these policies, which protect the business from liability if the car or truck causes property damage. 

  1. Employment-related Insurance

Workers’ compensation and unemployment insurance are essential to have for businesses that employ workers. Workers’ comp pays out claims if someone is hurt on the job. With unemployment insurance, the company is covered if an employee files for unemployment benefits. 

Niche Trade Credit is one of the most professional, dynamic, and trustworthy Specialist Credit Insurance Brokerages in Australia. We’ve been serving and protecting businesses from a range of liability issues for more than 30 years. Contact us today and see why business owners trust us with their insurance needs. Give us a call today 02 9416 0670.

*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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What Experts Think

Credit Insurance Vs. Bank Guarantee

When it comes to satisfying payment obligations for international trade, there are a number of different ways you can ensure the proper payment for your goods or services – like a letter of credit, performance guarantee, bank guarantee or credit insurance.

Of these, credit insurance and bank guarantees are two of the most popular ways of guaranteeing payment. However, they differ quite a bit in how they work, their terms and conditions, and more.

In this article, Niche Trade Credit will look at the differences between credit insurance and a bank guarantee, and explain how they differ from one another.

Understanding A Bank Guarantee And How It Works

Essentially, a bank guarantee is a guarantee by a particular lending institution to cover the full amount of a loss in the event of a borrower defaulting on a loan. These guarantees are often used in international trade, as they help eliminate the risk of non-payment.

Because of the general nature of a bank guarantee, lenders can issue bank guarantees of many types. A few common types include:

  • Payment guarantee – A payment guarantee ensures that a buyer will pay a seller on a particular date.
  • Advance payment guarantee – This acts as collateral for the buyer, allowing them to recover advance payment from a buyer if the goods or services supplied do not meet the specifications outlined in the contract.
  • Performance bond – A performance bond serves as collateral that will cover a buyer’s costs if the services or goods provided by a contractor do not meet its contractual requirements.
    For example, in the event of a contractor failing to meet its contractual obligation to deliver steel of a particular grade, a performance bond would compensate the buyer for the loss incurred by the event. 

Though there are many different types, they all have the same basic purpose – to protect companies from the risk of default or a failure to provide the specified goods and services and fulfill contractual obligations.

Understanding Credit Insurance And How It Works

Credit insurance is offered by an insurance company, and is much more simple and straightforward, compared to bank guarantees.

Credit insurance, also called “trade credit insurance,” is intended to protect providers of goods and services from nonpayment. For example, if you sell $1 million of items to a customer on net 30 terms and they fail to pay, your insurance policy will compensate you once the debt enters default.

Usually, unlike a bank guarantee, credit insurance policies do not compensate you for the full value of the owed money, but for a set percentage – usually 75-95% – of the invoice amount.

In most cases, credit insurance is the simplest and most affordable way to protect your accounts receivable against debt. Whether you’re working with customers who have high credit risks, extending credit to companies in foreign countries, or simply want to protect your cash flow from bad debt, credit insurance can be very useful.

Know The Difference Between Bank Guarantees And Trade Credit Insurance!

Depending on the type of trade you engage in and the goods and services you provide, either trade credit insurance or a bank guarantee may be right for you. 

Need help deciding? Want to find the best credit insurance solution? Contact Niche TC today. As a leading Australian broker for more than 30 years, we can provide you with all of the information you need to make the right decision.

Get in touch today on 02 9416 0670.

*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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What Experts Think

What is a Political Risk Insurance Breach of Contract?

Is your business engaging in cross-border trade with a developing country? While emerging markets can offer companies unique opportunities, they aren’t without their risks. Companies with overseas operations in emerging markets are exposed to political violence and financial crisis that can leave their business at risk of asset and income loss. When you work in a country that is at risk of civil disturbances and government upheavals and instabilities, you must protect your company with political risk insurance. 

What is political risk insurance?

Political risk insurance is a type of investment insurance that protects a business from the risks associated with conducting operations in emerging markets. The company is protected while doing business either in the host country or with the host government. Companies are protected from loss of income when sovereign financial obligations aren’t met.  A company’s assets that are held overseas, such as construction equipment, are also covered from damage in the event of a war, rebellion, or other political violence. 

Where can a business get a political risk insurance policy?

A company can get a policy from private insurers and export credit agencies like Niche Trade Credit. It’s also possible to obtain coverage from a state-owned organisation, or an investment guarantee agency MIGA, or the World Bank Group. An investment insurance company and a multilateral investment guarantee agency can also provide businesses with political risk insurance policies. If you already have a political risk insurance policy or are looking into getting trade insurance coverage, you may be wondering when political risk insurance covers a breach of contract. 

What is a breach of contract?

A contractual breach can trigger your political risk insurance policy to cover losses that happen from a breach of contract. In most cases, companies will need to obtain compensation for damages that occur when the failure to honour sovereign financial obligations occurs. If a host government does not honour their financial commitments to your company, that is considered a breach of contract and is covered under political risk insurance. The insurance company will compensate the business for any losses incurred from this type of contract breach. 

Sometimes, contracts are breached in other ways that are also covered under political risks. For example, the host country could seize your property, otherwise known as expropriation. They could make your company’s operations illegal, or take other actions that violate the conditions of your original contract with them. This would also constitute a breach of contract and would be covered under your policy. But it’s critical for the health and viability of your organisation that you choose the correct political risk insurance for protection from breach of contract issues. 

When you choose a policy, you want to make sure that it covers your business against all types of political risk and foreign instabilities. For example:

  • Wars and acts of terrorism
  • Political violence and rebellions
  • Currency inconvertibility 
  • Expropriation
  • Breach of contract

Every business is different, and so is its liability and risk profile. When it comes to choosing the right political risk insurance for your company, you’ll need to speak to a political risk insurance professional.

An insurance professional can accurately assess the short, medium, and long-term risks your company faces in a developing nation. Also, insurance companies who specialise in underwriting political risk insurance policies will consult with insurance professionals who are experts at the political risks that can arise in specific nations. Contact the insurance experts at Niche TC today to learn more about how political risk insurance can protect your business. Call us today 02 9416 0670.

*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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What Experts Think

Understanding A Political Risk Insurance Sample Policy

If you’re working in any country where there is a risk of political instability, and your assets or products could be at risk, insuring yourself with a political risk insurance policy is likely a good idea.

But what’s included in political risk insurance? Will you be covered in every situation? Can you add additional coverage to a specific contract or for a particular country?

These are all good questions. So, in this article, we’ll discuss everything you need to know about political risk insurance, based on a political risk insurance sample policy.

Understanding What’s Covered

Each insurance policy is designed specifically for the needs of a single company. However, a political risk insurance sample policy may include the following coverages:

  • Breach or frustration of contract – If a contract is breached or frustrated by a foreign government, you will be compensated for the lost revenue and income. For example, if you delivered a shipment of drones to a government and they refused to pay, you would be covered.
  • Political violence – This coverage protects your business from losses incurred by war, political unrest and instability, violence, civil war, and other such instances of political violence.
  • Expropriation of private property – If your property or infrastructure is seized by a foreign government, your insurance policy will compensate you for the value of the lost assets.
  • Business interruption – Loss of licensure, interruptions of business due to civil unrest, and other such interruptions of revenue are typically covered by a political risk insurance policy.
  • Foreign currency and banking issues – Issues with moving foreign currency to your own bank, converting it, hyperinflation, or seizure of your currency by a central foreign bank all may be covered in your policy.
  • License suspension – Should your import/export license be suspended, you may be compensated for the value of the shipments you lost or could not deliver, due to this suspension.
  • Government defaulting on payments – If a foreign government fails to repay its debts to you, based on your contract, the insurance company will compensate you for a percentage of the lost sale.

There can be more specific coverage, based on your own needs, but these are the most common types of coverage included in a political risk insurance sample policy.

Limitations Of Coverage

In general, any covered incident occurring will result in you being paid for the loss by your insurance company. But what’s important to understand is that, in most cases, you will not receive compensation for the entire loss – but for a percentage, as set forth in your policy.

Premium Costs And Your Obligations

The premium of your political risk insurance coverage depends on a number of different factors.

  • Value of contract or goods – The more valuable a contract is, the more it will cost to insure it
  • Percentage of contract that will be paid out – You may be able to lower your premiums by agreeing upon a lower percentage that pays out upon your loss, such as 70%, rather than 85%.
  • Location in which you’re doing business – A higher-risk country will require a more expensive policy, due to the increased risk of political instability.
  • Creditworthiness of the client/government – Even in an unstable country, premiums and rates for a client or government with a history of timely payments may be lower, because there is a lower risk of default and non-payment.

See A Political Risk Insurance Sample Policy For Yourself!

Above, we’ve simply outlined the main components of a political risk insurance sample policy. If you’d like to dive deeper, the team at Niche Trade Credit would be happy to help!

We’ve been working as political risk insurance brokers for almost 20 years. Contact us now, and we’d be happy to provide you with a political risk insurance sample quote, and help you understand how much you can expect to pay for coverage.

*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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What Experts Think

Advantages and Disadvantages Of Export Credit Insurance

Export credit insurance, often also known as trade credit insurance, is a useful way to insure your accounts receivable. But is it right for you? Many alternatives exist, such as invoice factoring and letters of credit issued by an export/import bank, as well as some other forms of insurance for exporters.

So, in this article, Niche TC takes a look at advantages and disadvanatges of export credit insurance, to help you determine if it’s right for you.

The Advantages Of An Export Credit Insurance Policy

Export credit insurance has benefits not just when working in foreign markets and with a foreign buyer, but even for companies who do most of their business domestically. Here are a few of the advantages of taking out a policy.

  • Peace of mind – You’ll know that, even if you cannot convert on your foreign receivables, you’ll be compensated for the value of these accounts. This minimizes your credit risk, and protects your company.
  • You can expand more quickly – Without an export credit insurance policy, working with foreign or new companies is very risky. But with a policy in place, your risk is minimized, allowing you to gain new customers quickly.
  • Protect your most critical accounts – If your company would be devastated by a single one of your clients going out of business, taking out an export credit insurance policy can help you ensure that your business remains functional and stable.

The Disadvantages Of An Export Credit Insurance Policy

Despite its many benefits, export credit insurance may not be necessary for your company. There are a few drawbacks and disadvantages of taking out a policy for this type of insurance.

  • It’s not available for some high-risk accounts – In most cases, a trade credit insurance policy will not cover accounts that have a very high credit risk. Or, if they do, the fee will be very high. This means you’ll pay much more when working with these companies.
  • Doesn’t cover every non-payment situation – While bankruptcies, defaulting, and things like political unrest or turmoil are usually covered by an export credit insurance policy, things like slow payment or late payment, and customer disputes or claims that products are in poor condition or incorrect are not covered.
  • Exclusions and limitations vary – You’ll want to work with a reputable trade credit company, and make sure you understand all of the limitations and exclusions related to your policy. Understanding this information can be quite difficult, in some cases.

Is Export Credit Insurance Right For You? Find Out With Niche Trade Credit!

There are many factors that affect your need for export credit insurance – including the size of each client you have, the amount of credit you typically extend, the international countries in which you’re expanding, and the relative stability of the industries in which your clients or customers work.

So, how do you know if you need export credit insurance? We recommend contacting Niche Trade Credit now. Our team of experts can help you understand whether you need a policy, and which type of policy is right for your company. 

*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.