Haris Ashley
Export risk insurance, also known as export credit insurance (ECI), is a type of business insurance that protects companies from financial losses due to non-payment by foreign buyers. It covers commercial risks, such as insolvency or bankruptcy, and political risks, including war, terrorism, and political violence. ECI helps businesses manage payment risks, facilitates international expansion, and makes it easier to access funds and loans. It is offered by private insurance companies, government agencies like the Export-Import Bank of the United States (EXIM), and multilateral agencies like MIGA, part of the World Bank. ECI is available for both short-term and medium-term repayment periods and can be purchased on a single-buyer or multi-buyer basis.
| Characteristics | Values |
|---|---|
| Definition | A specialised insurance coverage designed to protect a trader's foreign accounts receivable. |
| Who is it for? | All businesses, from SMEs to large multinationals. |
| What does it protect against? | Non-payment by foreign buyers due to commercial and political risks. |
| Commercial risks covered | Insolvency of the buyer, bankruptcy, protracted defaults/slow payment. |
| Political risks covered | War, terrorism, riots, revolution, expropriation, currency inconvertibility, changes in import or export regulations, political violence, embargo, forced abandonment, breach of contract. |
| Other benefits | Easy access to funds, tax benefits, protection against bad debt, helps businesses grow and explore new markets. |
| Types | Short-term, medium-term, long-term. |
| Where to buy | Private commercial risk insurance companies, Export-Import Bank of the United States (EXIM), or directly from EXIM's list of registered insurance brokers. |
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What You'll Learn
Export credit insurance (ECI) protects exporters from non-payment
Export credit insurance (ECI) is a type of business insurance that protects exporters of products and services from non-payment by foreign buyers. It is a payment risk management tool used by multinationals and SMEs in international trade. ECI offers conditional assurance to exporters that they will receive payment if the foreign buyer is unable to pay due to circumstances beyond their control. This includes commercial risks, such as insolvency, bankruptcy, or protracted defaults, and political risks, including war, terrorism, riots, and revolution.
ECI policies are offered by private commercial risk insurance companies and government agencies like the Export-Import Bank of the United States (EXIM). EXIM assists in financing the export of US goods and services to international markets. US exporters are advised to engage a specialty insurance broker to find the most cost-effective ECI solution. ECI premiums are based on risk factors and may be lower for established exporters.
The benefits of ECI include reduced risk of non-payment, improved access to financing, and the ability to explore new markets. With ECI, exporters can increase their borrowing capacity and obtain more attractive financing terms. It also transforms an exporter's foreign accounts receivables into receivables insured by the US government, enhancing their credibility and financial stability.
ECI is available for both short-term and medium-term coverage. Short-term ECI typically covers consumer goods, materials, and services for up to 180 days, while medium-term ECI covers large capital equipment for up to five years. The cost of ECI is often incorporated into the selling price by exporters and should be purchased proactively before any issues arise.
Overall, ECI is a valuable tool for exporters to protect themselves from non-payment, facilitating their growth and competitiveness in the global market.
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ECI covers commercial and political risks
Export Credit Insurance (ECI) is a specialised insurance coverage designed to protect a trader's foreign accounts receivable. It is a payment risk management tool used by multinationals and SMEs in international trade. ECI covers commercial and political risks, helping businesses to hedge risks that may affect the payment of exports.
Commercial risks covered by ECI include the insolvency of the buyer, bankruptcy, protracted defaults, and slow payment. It also covers the exporter in the event of the buyer's physical loss or damage to the goods shipped. Political risks covered by ECI include war, terrorism, riots, and revolution, expropriation, political violence, currency inconvertibility, embargo, forced abandonment, and changes in import or export regulations. ECI also covers the risk of unfair calling of contract surety bonds, protecting exporters from losing advance payments.
The cost of ECI is often incorporated into the selling price by exporters and can be purchased on a single-buyer or portfolio multi-buyer basis for short-term (up to one year) and medium-term (one to five years) repayment periods. Short-term ECI provides 90 to 95 percent coverage, while medium-term ECI provides 85 percent coverage of the net contract value.
By having ECI, businesses can enjoy easier access to funds as it provides financial institutions with the assurance that the business's bottom line is secure. It also reduces the tax burden as insurance premiums are tax-deductible. Additionally, ECI helps businesses grow and explore new markets by providing financial intelligence and risk protection, allowing companies to achieve greater speed to market and sales growth.
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It helps exporters explore new markets
Export credit insurance (ECI) is a payment risk management tool that helps exporters explore new markets. It protects exporters of products and services against the risk of non-payment by a foreign buyer. In other words, ECI gives exporters conditional assurance that payment will be made if the foreign buyer is unable to pay due to commercial or political risks. This allows exporters to protect their foreign receivables against a variety of risks.
Commercial risks covered by ECI include the insolvency of the buyer, bankruptcy, or protracted defaults/slow payment. Political risks covered include war, terrorism, riots, revolution, expropriation, currency inconvertibility, and changes in import or export regulations. ECI also covers contract surety bonds, which protect exporters against the risk of losing advance payments if political risks materialise.
By reducing the risk of non-payment, ECI makes it easier for exporters to explore new markets and secure export contracts. Lenders are more willing to increase the exporter's borrowing capacity and offer more attractive financing terms when foreign accounts receivable are insured. This increased borrowing capacity can be leveraged to grow the business and enter new markets.
Additionally, ECI can help exporters access financial intelligence and gain insights into local businesses, payment practices, and geopolitical risks in new markets. This information can be used to decide whether to ship goods to a new buyer on credit, helping exporters achieve greater speed to market and sales growth.
Overall, ECI provides exporters with the security and confidence needed to explore new markets, increase their global competitiveness, and grow their businesses internationally.
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Lenders are more willing to lend to exporters with ECI
Export credit insurance (ECI) is a tool used by businesses of all sizes to protect their foreign accounts receivable. It is an assurance that exporters will receive payment for their goods and services even if the foreign buyer is unable to pay. This may be due to a variety of commercial and political risks, such as the insolvency of the buyer, bankruptcy, protracted defaults, or events like war, terrorism, riots, and revolution. ECI also covers currency inconvertibility, expropriation, and changes in import or export regulations.
For example, a company called PolyQuest has leveraged trade credit insurance to borrow from a bank in Europe. Mike Moran, PolyQuest's Financial Controller and Credit Risk Manager, said that "Allianz Trade has been extremely important in allowing us to grow via borrowing from the bank in our ABL [asset-based lending] arrangement in Europe."
Additionally, ECI can help exporters explore new markets and secure export contracts. It can also provide tax benefits, as the assurance of receiving compensation for non-payment reduces the need for a large loss reserve, resulting in a lower overall tax burden.
ECI is offered by many private commercial risk insurance companies, as well as government agencies like the Export-Import Bank of the United States (EXIM). It is available for both single-buyer and portfolio multi-buyer bases and can be purchased for short-term (up to one year) and medium-term (one to five years) repayment periods.
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ECI is available from private insurance companies and government agencies
Export Credit Insurance (ECI) is available from private insurance companies and government agencies. ECI is a specialised insurance coverage that protects exporters of products and services against the risk of non-payment by a foreign buyer. It significantly reduces the payment risks associated with doing business internationally by assuring exporters of payment in the event that the foreign buyer is unable to pay.
Private commercial risk insurance companies offer ECI policies, with premiums determined based on risk factors. Reputable companies that sell commercial ECI policies can be found online. Additionally, government agencies like the Export-Import Bank of the United States (EXIM) provide ECI, assisting in financing the export of US goods and services to international markets. EXIM also offers a list of registered insurance brokers on its website or via a phone call.
In the Netherlands, the government's ECI facility ensures Dutch companies remain competitive in the international market, especially in sectors like shipbuilding, contracting, and medical equipment. The Dutch State facility for export credit insurance is utilised when private insurance cannot cover losses in large transactions, exports to unstable countries, or long-term maturities. The Dutch government also promotes sustainable lending to prevent borrowing beyond repayment capabilities.
ECI provides exporters with benefits such as increased borrowing capacity, improved financing terms, and reduced risk of non-payment by foreign buyers. It covers commercial risks like insolvency and political risks like war and expropriation. ECI is available for short-term and medium-term repayment periods, with varying levels of coverage depending on the type of goods and services exported.
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Frequently asked questions
Export risk insurance, also known as export credit insurance (ECI), is a type of business insurance that protects exporters of products and services against the risk of non-payment by a foreign buyer.
Export credit insurance generally covers commercial risks (such as insolvency of the buyer, bankruptcy, or protracted defaults/slow payment) and certain political risks (such as war, terrorism, riots, revolution, political violence, currency inconvertibility, expropriation, embargo, and changes in import or export regulations).
Export credit insurance is suitable for all businesses, from SMEs to large multinationals.
ECI policies are offered by many private commercial risk insurance companies, as well as government agencies like the Export-Import Bank of the United States (EXIM).
