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Understanding Common Types Of Export Insurance, & What They Cover

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

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.

Cargo Insurance

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.

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What Experts Think

Credit Insurance Vs. Bank Guarantee

Credit insurance and bank guarantees are both financial tools for satisfying payment obligations for international trade. Typically, they are promises from a lending institution that a debtor will settle their debt to a third party, regardless of the borrower’s financial circumstances. These financial promises assure the third party that if the borrower fails to repay the owed money, the lending firm will pay the total value on behalf of the borrowing party.

Credit insurance and bank guarantees reduce potential risk factors, promoting seamless payment for goods and services. But there are some differences between these two tools concerning their terms and conditions and how they work. Below, financial gurus from Niche Trade Credit explain how these tools differ from one another.

What is Credit Insurance – How does it Work?

Credit insurance, sometimes called trade or business credit insurance, is a risk management policy often provided by an independent insurance company. They are commonly used by importing and exporting companies and allow businesses to safeguard themselves from non-payment. Credit insurance serves as a protection from an insurance provider.

If you sell goods or services and a customer defaults payment, your insurance coverage will compensate you for the loss suffered. However, unlike a bank guarantee which pays the total value, trade credit insurance will reimburse a certain percentage, usually 75 to 95 per cent.

Credit insurance is considered a cost-effective solution for shielding your accounts receivable from bad debt. This financial instrument is useful for businesses dealing with customers with high credit risks, looking to protect their cash flow from debt, or extending credit to companies outside their operation area.

What is a Bank Guarantee – How does It Work?

Bank guarantees are usually used in construction contracts and real estate infrastructure projects. The main difference between a bank guarantee and credit insurance is that a bank guarantee provides a more outstanding contractual obligation for banks.

A lending institution is a guarantor between the seller and the buyer in international trade. The institution insures both parties from damage or loss suffered due to defaulting of either party and will pay the total value of a loss.

Bank guarantees often take various forms, including the following:

  • Loan guarantee – A lending firm that offers the loan ensures that the borrowing party pays the money. Failure to which, the institution takes the financial obligation.
  • Confirmed payment guarantees – Requires the bank to pay a certain amount to a buyer on behalf of the seller by a specified date. This acts as an irrevocable obligation.
  • Performance bonds – Performance bonds act as surety bonds to protect the buyer’s costs if the goods or services delivered by a contractor do not fulfill the contractual requirements. 
  • Advance payment bonds – These comprise collaterals that back up an agreement’s performance. It reimburses advance payments to protect the buyer should the seller fail to supply the items specified in the contract.

Although credit insurance and bank guarantees have some differences, they are both great financial equipment for fulfilling financial obligations in international trade.

How Niche Trade Credit Can Help

If you need help deciding which financial solution is good for your situation, experts from Niche Trade Credit can help. Schedule a free credit risk assessment to get started and learn how credit insurance solutions can help shield you and your business from bad debt.

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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Why is Insurance Important in Trade?

Trade and commerce insurance are integral parts of the contemporary world’s competitive global economy. Trade insurance allows businesses to establish a quality risk management system while trade credit insurance products safeguard businesses from instability, customer bankruptcy, and other credit risks.

Different types of insurance covers can protect your investment from particular circumstances and issues. This article will look at the benefits of trade risk insurance and the different kinds of insurance dynamics.

Insurance for Trade Creates Financial Stability

Generally, trade insurance is essential for protecting your business’s bottom line from organizational and financial uncertainties. Credit risks can arise faster, leading to business insolvency. Therefore, it is advisable for business owners to purchase the appropriate insurance packages to protect their investments against such risks.

Liability Insurance

Lawsuits from suppliers, clients and business partners can leave your business vulnerable to risks such as bankruptcy. Liability insurance can protect your business from these types of threats in case a stakeholder sues the company. There are different types of liability insurance. They include:

  • General Liability– This type of insurance protects your business from personal injury, property damage, political risks, and financial obligations due to negligence.
  • Product liability– This type of liability insurance safeguards your company from financial obligations that may arise if a consumer is hurt due to consuming faulty products from your business.
  • Errors and omissions– This liability insurance cushions your business from malpractice lawsuits against consultants, clinicians, and other service providers.

If your business does not have any of these insurance covers, you will be held liable for the financial obligation arising from these lawsuits. Besides, you risk having your personal credit destroyed due to these litigious obligations.

Property Insurance

It is imperative for any business that owns buildings and other properties to have a property insurance policy. Besides, companies that conduct their operations in rented spaces should have rental insurance.

These types of covers can safeguard your business from the financial challenges that may occur if the premises experience water damage, hail, or a fire break out. The property insurance also protects your business from financial problems that may occur due to acts of vandalism.

Besides, you might also need to consider purchasing a peril-specific insurance product. These policies cover businesses for specific risks that are more likely to appear. This means that you can remove a high-risk item from a list of all-inclusive insurance coverages.

Auto Insurance

Commercial auto insurance coverage best suits businesses that use vehicles in their operations. Having commercial auto insurance to cover your delivery truck, construction vehicle, or company car protects you from financial obligations that may arise if your vehicle causes an accident.

Employment Insurance

Employment-related insurance coverage is crucial for any organization that has employees. For instance, the worker’s compensation insurance settles medical costs, pain and suffering and lost wages for employees who sustain injuries while at the workplace. On the other hand, unemployment insurance helps protect the business from financial losses that may arise when a worker files for unemployment benefits.

How We Can Help

At Niche Trade Credit, we take pride in being the most reliable, dynamic and professional credit insurance brokerage in Australia. We have been in the insurance industry for more than 30 years, helping businesses protect their investment from a wide range of liabilities. Get in touch with us now at (02) 9416-0670 to schedule a free consultation and learn more about our quality trade credit insurance brokerage services in Australia.

*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 Is Whole Turnover Trade Credit Insurance? Do I Need It?

If you’ve been looking into protecting your balance sheet with trade credit insurance, you may be wondering about some general information behind the purchase of a “whole turnover” policy. What does whole turnover trade credit insurance cover? What does it mean?Can it protect my cash flow? Are there cancellable credit limits? Will my big key accounts be taken care of? In this brief blog, we’ll answer all of those questions and more! Let’s get started.

Whole Turnover Trade Credit Insurance Protects All Of Your Accounts Receivables

Up to a certain credit limit, and as a great means of risk management, whole turnover credit insurance will provide a percentage of coverage for your entire balance sheet.

These discretionary limits and the percent of cover that a trade credit insurance coverage policy offers are set when you purchase your policy. These credit terms are based on perceived risk, influenced by – political events and political risk, the size and track record of your accounts, as well as a multitude of other factors.

As a rule, the higher the percentage of accounts receivables, the higher your premium will be. The same is true of each buyer covered – higher credit lines and higher invoices will mean a higher premium.

What this does is protect you from bad debts. Insured turnover means that, if your export trade company is not paid by a particular company, you can still recover funds, up to the limit set by your policy. This preserves your cash flow, and allows you to continue operating, even if a customer defaults.

Do I Need Whole Turnover Trade Credit Insurance?

This really depends on how many clients you have, how reliable they are, and their payment history. In other words – how good is your credit management?

In many cases, it may make more sense to simply cover individual clients or transactions with their own trade credit insurance policy. This is very common, and often done for particularly large sales, or when selling to companies that are new to the industry, or located in unstable nations.

Most often, whole turnover trade credit insurance policies are used for those who engage in wholesale trade or international trade with just a handful of large clients. These policies are the most valuable for companies who would face serious financial difficulties if any of their large clients fail to pay, or fail to pay in a timely manner.

So, if you tend to work with a large volume of companies and have smaller transaction amounts, you may not need whole turnover trade credit insurance. But if you work with just a few large companies who pose a credit risk, and you would have cash flow difficulties if any of these companies defaulted, you may want to consider whole turnover trade credit insurance.

Learn More From Niche Trade Credit Now!

Niche Trade Credit specialise in trade credit insurance products and whole turnover insurance. We can provide you with a reasonably-priced policy that will protect your company, and give you peace of mind. Contact us now to learn more.

*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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How Much Does Export Credit Insurance Cost?

If you want to minimise your credit risk when extending lines of credit to your customers, export credit insurance – also called trade credit insurance – is a great option. And covers your overall level of risk – from bad debts to risk to non payment these are described in your credit terms.

Export credit insurance protects you from protracted default when foreign buyers fail to pay for your product or services, and helps cover the cost of debt collection when your buyers do not pay. If you cannot recover your funds from a single buyer, your insurance company will repay you, and cover the cost of the unpaid invoice.

So, how much can you expect to pay insurance companies if you want to protect yourself when conducting international trade? Let’s explore these questions in detail below.

Understanding The Average Cost Of Export Credit Insurance

As a rule, this type of risk insurance is calculated as a percentage of your overall invoices/accounts receivable. Currently, short term export credit insurance rates are usually hovering around 0.1-0.3 cents per dollar.

In other words, if your company has a total annual revenue of around $50 million AUD, you could expect to pay somewhere between $30k-$100k in insurance premiums to cover your accounts receivable.

This is just a rule of thumb, of course. Depending on your credit terms, the countries in which you operate, and other factors, the cost can vary.

What Affects My Export Credit Insurance Rates?

Many different factors can influence the cost of your export credit insurance policy. Here are a few of the most common such factors.

  • Total cash flow and outstanding invoices – The more credit you’re extending, the more your policy will cost. This is particularly true if you mostly extend credit to a handful of companies, and have high credit limits for each company.
  • Countries of operation – Companies working in developed countries, like America or Australia, face fewer political risks, compared to those mainly exporting to the developing world, and this can affect the cost of export credit insurance.
  • Creditworthiness of clients – Your insurance company will conduct due diligence on all of your clients, to ensure that they are likely to pay their invoices. Companies that have poor credit management and have defaulted or failed to pay in a timely manner in the past could increase the cost of your policy.
  • Percentage of compensation – This refers to how much of the value of an invoice you are eligible to recover when a client defaults. If your percentage of compensation is 70%, for example, you’ll get 70% of the value of the invoice from your insurer in case of nonpayment. A policy covering a higher percentage – 95%, for example – will be correspondingly more expensive.

How Can I Find The Best Rate For Export Credit Insurance?

The best way to find a great rate for export credit insurance is to shop around – there are many different trade credit/export credit insurance companies working in Australia, and you may be able to save money by comparing their rates.

Need help? Contact Niche TC now! As a leading Australian trade credit broker, we can help you compare policies from different insurance companies, and choose the one that’s right for you. Get started today, and get more information from our experts.

*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 Is A Trade Credit Insurance Discretionary Limit?

Trade credit insurance is an insurance product that covers your business against the risk of non-payment due to bankruptcy or default by a buyer. Essentially, your account receivable is one of the most important assets, which can also be highly vulnerable to other people’s actions.

Trade credit insurance helps protect the value of your account receivables from export transaction risks. Such as bad debt, insolvency, or political issues – all of which could affect your company’s financial strength. As a result, your profitability and cash flow will be protected if, for example, a customer buys goods or services and fails to pay due to bankruptcy or other reasons.

In this case, your insurance company will step in and cover your entire loss. A common term you may have come across when deciding if a product is right for you is “discretionary credit limit (DCL)”. So, what is it, and how does it work? Read on for further information on DCL.

Discretionary Credit Limit – What Is It?

Generally, you must set a credit limit for insurance coverage to apply to a buyer. This is often established by receiving credit approval from your insurer. However, you can set your own credit limits if your coverage has a discretionary credit limit.

That said, a discretionary credit limit is the maximum credit limit you may establish without contacting your insurance company. If you’re interested in setting your own DCL limit, consult with Niche Trade Credit insurance group professionals. Our DCL enables you to qualify most of your buyers for insurance coverage without our approval and to the customer relationships that matter most.

What is the Purpose of a DCL?

The ultimate purpose of credit discretionary limits is to ensure that you do not give lines of credit to debtors more than the amount established in your insurance agreement without first obtaining approval from your insurer. When you get trade credit insurance, your insurer only agrees to cover a portion of the risk of your account receivables depending on aspects such as your transaction value, country of operation, and the average transaction value.

For these reasons, your business could be at a higher risk if it gives large lines of credit to buyers with a bad repayment history for example. Keep in mind that any transaction you make over the agreed-upon DCL without obtaining written consent from your insurer may not be included in your trade credit insurance coverage.

Can You Exceed Your Trade Insurance Discretionary Limits?

The simple answer is yes. At Niche Trade Credit, we allow you to exceed your discretionary limits as your business expands. We understand that as your company grows, your sales volume increases too. Therefore, when making a larger transaction, it’s advisable to contact financial professionals for invoice approval.

Subsequently, your insurance may also opt to increase your discretionary limit if your company has expanded and you haven’t filed any claims recently.

Need More Explanation About Trade Credit Insurance Discretionary Limits? Get in Touch

There are many reasons businesses fail. But the most noticeable ones include poor credit management and reporting and poorly managed account receivables. If you’re struggling with any of these problems, don’t hesitate to contact Niche Trade Credit for help.

We have over 30 years of industry experience and can handle virtually everything regarding trade credit insurance. Please contact us today and let our professionals help you find the most suitable trade credit insurance policy for 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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Advantages and Disadvantages Of Export Credit Insurance

Export credit insurance or trade credit insurance is an essential tool to safeguard your accounts receivables. There are several ways to insure your foreign receivables, including invoice factoring or the letter of credit from export-import banks. With the number of alternatives available, you may be wondering whether export credit insurance is ideal for you.

This post will focus on the merits and demerits of trade credit insurance. Let’s delve in:

Advantage of an Export Credit Insurance

Trade credit insurance not only comes in handy when working with a foreign buyer or in foreign markets, but it also benefits organisations that carry out business locally. Some of the advantages of trade credit insurance policies include:

  • Expand into new markets – Working with a foreign buyer or in foreign markets exposes your investment to several risks. Luckily, with a credit insurance policy, you can reduce credit risks like the risk of nonpayment and improve your customer acquisition strategy. With an export trade insurance policy, you can comfortably expand to new markets, knowing that you will be compensated should your clients or customers default payments.
  • Peace of mind – With a trade credit insurance policy, you will be sure to receive your compensation if you cannot convert on your account receivables. This way, you will also minimise the risks of nonpayment and safeguard your company’s investment.
  • Safeguarding critical accounts – If the exit of one client can adversely affect your business, an export credit insurance policy will help to guarantee the stability and continuity of your business.
  • Opportunities for better financing – Most banks and financial institutions hesitate to offer loans to businesses engaging in international trade. With an export credit insurance policy, your financial institution will be ready to lend against foreign receivables, acknowledging that your policy fully backs them.

Disadvantages of Export Credit Insurance Policy

Although credit insurance may be beneficial to your business, there are several drawbacks to taking these types of policies. They include:

  • The Policy may not cover high-risk accounts – In most scenarios, the trade credit insurance policies may not be available for accounts with high credit risk. Besides, those that offer the coverage often charge very high fees.
  • Varying exclusions and limitations – You might have to ensure you are working with reputable companies and understand the exclusions and limitations of your policy. Since different policies have varying limitations and exclusions, it may be challenging to understand this type of information.
  • May not cover all nonpayment scenarios – Most policies cover factors like defaulting, bankruptcies, turmoil, and political instability. However, export credit insurance policies may not cover late payments, slow payments, customer disputes, and complaints about the quality of goods and services.

Is Trade Credit Insurance Right for You?

The size of your clientele, the average amount of credit you extend, the payment terms, the countries you operate your business, and the stability of the sectors your clients work in are some of the factors that may influence your need for export credit insurance.

Contact Niche Trade Credit to Learn More and Get Started

If you are not sure whether export credit insurance is right for you, Niche Trade Credit is here to offer the help you need. Contact us today to discover whether your need a credit insurance policy and which type of insurance will suit 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.

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Understanding A Sample Trade Credit Insurance Policy

If you’re thinking about purchasing a trade credit insurance policy, you may have some questions about what this insurance protects.
If so, you’re in the right place. In this blog, we’ll consider a sample trade credit insurance policy, and discuss the different coverages that are available, what you can expect to pay, and more details.

Sample Coverage For A Trade Credit Insurance Policy

First, let’s discuss what events are actually covered by the trade insurance policy itself. Policies are designed to aid in credit risk management and ensure you can trade with confidence when extending a line of credit to a buyer, whether in domestic trade or international trade and are domestic and export customers.
This is accomplished by insuring your accounts receivable from bad debts, and ensuring your cash flow remains stable and steady. They will pay out if:

  • A customer or client becomes insolvent, bankrupt, or otherwise is unable to pay – resulting in a protracted default
  • A customer or client becomes impossible to contact and does not pay, or a court judgment is issued against them

This helps ensure that you are paid for your goods and services issued on trade credit. Depending on your policy, you may be compensated for between 75-95% of the value of the debt.

In addition, many trade credit policies are also sold with political risk insurance. This type of insurance is similar, but it protects you from political risks such as:

  • The expropriation or seizure of your assets by a foreign government
  • Political violence (war, insurrection, terrorism, etc.)
  • Banking and currency conversion issues or inability to move currency to your country
  • Breach of contract or contract frustration by a government
  • Business interruption

Additional Benefits Granted By This Policy

One of the additional benefits offered by most credit risk insurers is that, if you need to take legal action against a client who has not paid, these costs will be covered by your insurance policy. The cost of hiring a debt collection service and other related fees may also be covered by your policy.

Limitations Of Coverage

The specific limitations of your policy will vary, based on the policy you purchase. However, it’s important to note that most policies will not cover customer disputes which result in non-payment.

For example, if you deliver a $100,000 order to a customer, and they claim that the items were missing, damaged, or not satisfactory, and they do not pay, you cannot simply turn to your policy for compensation. You must engage in arbitration and negotiations with the customer, and go through the proper legal channels to resolve the dispute. Therefore, it is your responsibility to assess the risk of nonpayment yourself when dealing with clientele. However if this is outside your capacity you may want to seek Single Buyer insurance to mitigate this risk.

Trade Credit Discretionary Limits

When you purchase an insurance policy, your insurer will likely give you a discretionary limit. This limit outlines the maximum business credit limit you can issue to a customer without getting approval from your insurer.

In other words, if your discretionary limit is set at $50,000, you cannot sell products or services on credit to a company in excess of that limit, unless you contact your insurer, and they perform a credit check and other necessary due diligence checks, and issue their approval for the transaction. You will always be vulnerable to debtors if you sell goods or services on credit terms.

Understanding Premium Costs

Your premium costs are usually calculated as a percentage of your overall revenue. The most common rate is at 0.1 to 0.3 cents per dollar of revenue. So, if your business did $5 million in sales per year, you could expect to pay around $10,000 in insurance premiums.

This will vary based on if your business has a history of collecting bad debt, the companies with which you’re working, the average value of your transactions, and a number of other factors. Your own export credit insurance premium costs could be higher or lower than this number.

Need More Help Understanding Trade Credit Insurance? Contact Us Today!

If you’d like us to provide you with a sample insurance policy and walk you through the coverage you can expect in more detail, contact the team at Niche TC right away.

We can help clear up any questions you have about our trade credit insurance products – and our insurance brokers can help you find the right policy, tailor-made to your particular needs. Get business insurance today and get started!

*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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How Political Risk Insurance Protects Contractors

Political risk insurance protects businesses from contract frustration that arises due to unstable political events in foreign markets. While nearly all types of companies that conduct international trade can obtain coverage for political risk from reputable financial institutions, contractors need to understand how political risk insurance protects them specifically. Contractors who work in the construction, engineering, and other contracting firms are protected with a political risk insurance policy from political violence, losses due to political issues, and foreign government action. 

Why is political risk insurance important for contractors to have?

In today’s global economy, many contracting businesses are taking advantage of unique opportunities in emerging markets. While these opportunities can be a goldmine for businesses, they put the firm at long-term risk for political instability. By obtaining coverage through a political risk insurance policy, companies are protected from asset, income, and property losses due to government involvement, war, and terrorism. Investors, lenders, and the contracting firm itself are all protected from these losses with political risk insurance. 

How are investors and financial institutions protected?

Political upheaval can leave investors vulnerable to a range of liability issues in foreign markets. Without protection, investors can have their profits, dividends, loan payments, and fees repatriated. For contracting firms with physical assets held in a foreign country, they leave their items vulnerable to damage from political violence. Foreign government instability and interventions can significantly impact financial institutions that engage in cross-border trade. Political risk insurance can protect these organisations from those risks, making a contracting firms business overseas a more stable investment risk for investors and lenders. 

How are contractors protected?

  • Contractors are protected from non-payment risks that occur from government and state-owned organisations instability in emerging markets. 
  • Contractors with large equipment and other physical assets held in a foreign country are protected from having these items damaged or becoming inaccessible from political violence. 
  • Political risk insurance also protects contractors in the mining, energy, engineering, and construction industries with performance guarantees. 

What types of liability issues does political risk insurance protect against?

  • Currency inconvertibility and Exchange Transfer Risk
  • Expropriation, Confiscation, Nationalisation
  • Economic Crashes and Political Upheaval
  • War, Strikes, Riots, Rebellions
  • Acts of Terrorism
  • Permit Cancellations
  • Delayed Payments
  • Selective Discrimination
  • Forced Divestiture and Forced Abandonment
  • Arbitration Award Default
  • Contract Frustration from Political Events
  • Wrongful Calling 
  • Non-honoring of Sovereign Obligations

Socioeconomic issues and foreign government interventions can create environments unfavorable to investors, lenders, and exporters, preventing them from taking advantage of business opportunities that arise in emerging markets. For contractors and other businesses who engage in foreign trade, it’s impossible to predict if these issues will occur and how much they will impact them long-term.

Unfortunately, exposing a business to these risks leaves them vulnerable to losing their assets and income. For contracting firms, having political risk insurance coverage can make their business operations a more attractive investment for lending institutions, which can give them an advantage over their competitors. 

At Niche Trade Credit, we can address these specific risks for contractors and other businesses with political risk insurance policies designed to protect your business from foreign instabilities. Our advisors will perform an in-depth analysis for a single situation, medium and long-term exposure risks with reliable underwriting and in-house country-risk analysis and political risks analysis from experienced advisers. See why people trust us to protect their business. Reach out to us 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

Understanding Political Risk Insurance Coverage Definitions

When it comes to insurance, one of the most important lines an insurer can offer for any company working in a developing country is political risk insurance.

Political risk insurance can be offered by financial institutions, a private insurance company, or a public agency. And while each policy will vary, they are all intended to do the same thing – safeguard companies who are undertaking long term projects and customers in emerging markets.

Unlike in stable, developed markets, there is always a risk of business delays and losses due to political instability and upheaval in emerging markets, and that’s what’s covered by political risk insurance coverage. Learn more about the most common political, economic, and financial issues covered by this type of insurance now.

  1. Contract Breach Or Contract Frustration

If a foreign government breaches its contract for any unfounded reason, a political risk insurance policy will cover the associated costs and losses, making one of these policies very important for risk management.

Contract frustration is also covered by political risk insurance. Frustration occurs when, due to unforeseen circumstances like a political revolution, one party in a contract is unable to uphold its end of the deal.

  1. Political Violence And Upheaval

Every form of political violence is covered by a political risk insurance policy, including civil war and wars abroad, armed rebellion or insurrection, civil disobedience that causes major upheaval, and other government action or action by citizens that could damage your profits and cause your project to fail, resulting in financial loss from forced abandonment.

  1. Expropriation Or Nationalization Of Property Or Assets

This is of particular importance to infrastructure developers. If their property is confiscated or nationalized by a government, they will be compensated for the financial loss of their private property.

An example of this would be when Venezuela, under Hugo Chavez, expropriated and nationalized 11 oil rigs from a US-based drilling company, Helmerich & Payne. Thanks to a political risk insurance company, the owners of these rigs were able to recover $43 million.

  1. Foreign Currency Inconvertibility, Inability To Repatriate Funds

Even if a business transaction in a developing market is successful, there is the risk that the funds may not be able to be converted back into the proper currency, or that the government or a bank may block the repatriation of funds. In this case, political risk insurance coverage will compensate for the loss.

  1. Business Interruption

Business interruption is often covered in tandem with other protected events. For example, a company that has its business interrupted by several weeks of rioting and protests may be covered for business interruption due to political violence.

  1. Government Default On Payments

In the event that a government simply refuses to pay you for the services or goods which you have rendered to them, your political risk coverage will cover this loss.

  1. Import/Export License Suspension Or Revocation

If your license is suspended due to political reasons, or revoked, political risk coverage will typically compensate you for the losses related to this loss. Note that this may not be true if you were conducting illegal activities, or if you were found to violate import/export regulations.

Coverage Varies Based On Your Policy – So Do Your Research!

Depending on the policy you purchase, your coverage may vary quite a bit. Every insurer offers a different type of political risk insurance, and the cost will also vary, based on the assets you need to protect, and a number of other factors.

To make sure that you have the political risk insurance that you need to protect your company, you should get help choosing a policy. At Niche Trade Credit, we have more than a decade of experience working with top insurers as an insurance broker. We can help you pick out the right political risk insurance product, and get a great rate. Contact us now to learn more.

*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.