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What is export credit insurance?

Export credit insurance protects exporters from risks associated with exporting to international marketplaces. Learn more about its benefits and risks in this blog.

While exporting from India, insurance is important to plan and mitigate risks associated with international trade. Insurance provides exporters with a sense of security and allows them to expand their businesses without many hassles.

What is export credit insurance?

Export credit insurance in India is a type of insurance that protects Indian exporters from the risks associated with exporting to international markets. The Export Credit Guarantee Corporation of India Limited (ECGC) is the provider of export credit insurance in India, offering a range of insurance products including protection against payment defaults.

Characteristics of export credit insurance

One of the key features of export credit insurance is that the policies cover both commercial and political risks associated with exporting. ECGC also provides coverage for pre-shipment and post-shipment risks, and a coverage for up to 95% of the invoice value of exports. It also offers policies that can be customized to suit specific needs of exporters. ECGC also provides policyholders access to a range of value-added services such as market intelligence, credit information, and advisory services¹.

Benefits of export credit insurance

Here are a few benefits of export credit insurance:
1. Protects exporters from non-payment or delayed payment by importers
2. Enables exporters to offer competitive credit terms to customers or importers
3. Helps exporters to expand their business to new markets
4. Reduces the financial risk associated with exporting
5. Improves cash flow by ensuring timely payment for exports
6. Provides access to financing from banks and other financial institutions
7. Enhances the credibility and reputation of the exporter
8. Provides market intelligence and credit information to exporters

Risks covered by export credit insurance

Some of the risks covered by export credit insurance include²:

Commercial risk:

This is the risk that the importer will fail to pay for the goods or services due to insolvency, bankruptcy, or default.

Political risk:

This is a type of risk that the payment will not be made due to political events such as war, revolution, currency transfer restrictions, etc.

Contract frustration risk:

This is the risk that the payment will not be made due to a breach of contract by the importer.

Currency risk:

This is the risk that the foreign currency will fluctuate, resulting in a loss for the exporter when they convert the payment back to their home currency.

By covering these risks, export credit insurance provides businesses with confidence and support to expand their businesses to new markets.

How does export credit insurance work?

Here is how export credit insurance works:
1. An exporter applies for an export credit insurance policy from an insurance provider.
2. The insurance provider assesses the risk of international customer or importer defaulting on payment.
3. If approved, the exporter can ship goods or provide services.
4. If the customer defaults on payment, the exporter can file a claim with the insurance provider.
5. If the claim is approved, the insurance provider will cover the cost of the non-payment.

Best practices to avoid export credit risk

Some of the best practices to avoid export credit risks are:
• Conducting due diligence on potential customers
• Using secure payment methods
• Diversifying the customer base
• Obtaining credit insurance
• Creating an export plan, and seeking advice from experienced professionals in the field
• Staying up-to-date on international trade regulations
• Being aware of any political or economic instability that could affect exports

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Frequently Asked Questions

Why do businesses get export credit insurance?

Businesses can avail of export credit insurance to protect themselves against non-payment by foreign customers.

Where can I get export credit insurance?

Insurance providers offer export credit insurance.

Published on July 29, 2023.

Sources:
1. https://www.exim.gov/what-we-do/export-credit-insurance
2. https://www.ecgc.in/home.aspx
3. https://www.aon.com/getmedia/47611b09-6aa1-42f8-985b-371a640f87d2/Understanding-the-Benefits-of-Export-Credit-Insurance.aspx
4. https://www.trade.gov/export-solutions/articles/best-practices-avoiding-export-credit-risk
5. https://www.export.gov/article?id=Credit-Insurance
6. https://www.coface.com/Products-Services/Products/Trade-Credit-Insurance

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*Map not to scale. The map has been used for design and representational purpose only, it does not depict the geographical boundaries of the country. These do not conform to the external boundaries of India recognized by the Survey of India.