export credit insurance (eci) protects an exporter of products and services against the risk of non-payment by a foreign buyer. In other words, ECI significantly reduces the payment risks associated with doing business internationally by providing the exporter with a conditional guarantee that payment will be made if the foreign buyer is unable to pay. Simply put, exporters can protect their foreign receivables against a variety of risks that could result in non-payment by foreign buyers.
eci generally covers commercial risks (such as buyer insolvency, bankruptcy, or long defaults/slow payments) and certain political risks (such as war, terrorism, riots, and revolutions) that could result in failure of payment. eci also covers currency inconvertibility, expropriation, and changes in import or export regulations. eci is offered to a single buyer or a portfolio of multiple buyers for short-term (up to one year) and medium-term (one to five years) repayment periods. key points
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eci enables exporters to offer competitive open account terms to foreign buyers while minimizing the risk of non-payment.
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Even buyers in good standing could default due to circumstances beyond their control.
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With reduced risk of default, exporters can increase export sales, establish market share in emerging and developing countries, and compete more vigorously in the global marketplace.
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When foreign receivables are insured, lenders are more willing to increase the exporter’s borrowing capacity and offer more attractive financing terms.
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eci does not cover physical loss or damage to goods shipped to the buyer, or any of the risks for which coverage is available through marine, fire, accident or other forms of insurance.
characteristics of export credit insurance
applicability is recommended for use in conjunction with open account terms and pre-export working capital financing. risk exporters bear the risk of the uncovered part of the loss and their claims may be denied in the event of non-compliance with the requirements specified in the policy.
pros reduces the risk of non-payment by foreign buyers offers secure open account conditions in the global market. cons cost of obtaining and maintaining an insurance policy. risk sharing in the form of a deductible (coverage is typically less than 100 percent).
coverage
short-term
eci, which provides 90 to 95 percent coverage against commercial and political risks resulting in buyer payment defaults, generally covers (a) consumable goods, materials, and services for up to 180 days, and ( b) small capital goods, consumer durables and bulk commodities up to 360 days. Medium-Term ECI, which provides coverage of 85 percent of net contract value, typically covers large capital equipment for up to five years. eci, the cost of which is often built into exporters’ selling price, should be a proactive purchase, with exporters obtaining coverage before a customer becomes a problem.
Where can I get export credit insurance? ECI policies are offered by many private commercial risk insurance companies, as well as by the Export-Import Bank of the United States (EXIM), the government agency that helps finance US exports. goods and services to international markets. U.S. Exporters are strongly advised to find a specialized insurance broker who can help them select the most cost-effective solution for their needs. Reputable and well-established companies that sell commercial ECI policies can be easily found on the internet. You can also buy ECI policies directly from Exim. In addition, a list of active exim-registered insurance brokers is available at www.exim.gov or you may call 1-800-565-exim (3946) for more information. private sector export credit insurance
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Premiums are individually determined based on risk factors and may be reduced for established and experienced exporters.
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Most multi-buyer policies cost less than 1 percent of insured sales, while prices for single-buyer policies vary widely due to the supposed higher risk.
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There are no restrictions regarding foreign content or military sales.
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Commercial insurance companies can usually offer flexible and discretionary credit limits.
exim bank export credit insurance
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exim clients are advised to consult the exhibition fee information & fee calculators section (which are posted on the bank’s website www.exim.gov under the “apply” section) to determine exposure fees (premiums).
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Coverage is available in riskier emerging foreign markets where private insurers cannot operate.
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exporters who choose an exim working capital guarantee can receive a 25 percent premium discount on multi-buyer insurance policies.
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Enhanced support for environmentally friendly exports is offered.
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Products must be shipped from the united states and be at least 50 percent us. contents.
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exim cannot endorse military products or purchases made by foreign military entities.
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export support may be closed or restricted in certain countries for us. uu. government policy reasons (for more information, please refer to the country limitation schedule posted on the bank’s website in the “apply” section).
This article is from US Chapter 9. uu. government trade finance guide. For more information on credit insurance, visit the Exim website.
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