International trade insurance protects importers and exporters from various losses, including damage to goods, non-payment, and product liability. Insurance agencies work with banks and governments to develop products that facilitate international sales, such as export credit, cargo, and product liability insurance.
International trade insurance indemnifies importers and exporters for various types of losses, including damage to goods in transit, products injuring consumers, and importer non-payment. Indemnity means to compensate a company when it loses money due to one of these events. The insurance industry plays a role alongside banks and financial intermediaries to ensure that parties to an international sale have the ability to transact business effectively across international borders. Insurance agencies bear part of the risk so that exporters, in particular, can take advantage of opportunities to expand their business into foreign markets.
The insurance industry has a vested interest in a robust economy with a healthy business environment that can reach customers globally. Together with governments, banks and financial intermediaries, insurance agencies develop products that facilitate international sales. Particularly with small and medium-sized businesses, insurance agencies can use their familiarity with foreign markets to alleviate some of the risk a novice exporter experiences by not having the kind of institutional reach that would allow the exporter to easily check credit and business history. from an importer. .
Insurance agencies develop different international trade insurance products from time to time, such as foreign exchange insurance, but the main types of insurance used to facilitate trade include export credit, cargo insurance, and product liability. Export credit insurance allows exporters to offer importers open credit terms. The insurance provides protection again for non-payment by the importer and will pay most of the value of a delinquent account receivable. As long as the exporter has the resources and cash flow to comfortably get the product to the importer with a promise to pay that might not happen for 180 days, insurance removes the risk inherent in extending credit.
Cargo insurance is a type of international trade insurance that insures goods in transit. It can be extracted by importers or exporters and usually contains provisions that are determined by the terms of the sales contract. This type of insurance protects against complete loss, damage that occurs during shipment, and any damage that occurs while the merchandise is in the customs warehouses of any country. Certain eventualities that can occur when goods enter a foreign country are also covered, such as seizure and products opened during inspections and unsellable.
The other common type of international trade insurance covers product liability. If a customer is injured as a result of imported products, the liability can be significant. Often the exporter and importer have this type of coverage as part of their general commercial insurance policies. Specific coverage for goods imported from or exported to foreign countries must often be added to policies that only cover domestic sales. Alternatively, the parties should obtain a separate policy to protect their business interests.
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