Home » INSURANCE » Definition of Export Credit Insurance

Definition of Export Credit Insurance

Export Credit Insurance – The insurance policy that is taken to cover the risks posed by commercial, political and social factors in the export of goods is called export credit insurance. Usually the importer fixes the price after understanding the exported product. Therefore, due to various risks (such as: delay in price fixing, bankruptcy of the importer, late delivery of goods, change in demand and exchange rate, political instability, war), etc., there is an uncertainty in the receipt of commodity prices. Export credit is introduced to offset the risks posed by these uncertainties.

Through such insurance, the insurer accepts these risks and guarantees compensation to the exporter. The first export loan guarantee insurance was introduced in 1918 at the initiative of the United Kingdom government. In order to increase the exports of our country, the then government of Pakistan introduced the Export Borrowing Guarantee Scheme in 1962.

About Export Credit Insurance, s. According to Kanwal,

“Under the scheme of export risk insurance the exporters are secured against the risks and losses involved in export trade and they become able to face uncertainties which may cause huge losses.” That is, under the Export Guarantee Insurance, the exporter is able to eliminate the uncertainty by mitigating the export risk and loss.

Export Credit Insurance The risks are:

  • Buyer bankruptcy.
  • Not paying the price on time.
  • Obstruction of price due to war or civil war, revolution, riots, etc.
  • If the buyer refuses to accept the shipment even though there is no defect in the exporter’s corner.
  • If the government of the buyer’s country suddenly imposes a ban on imports and for that the exporter is deprived of the value of the exported goods.
  • If the ship carrying the exported goods is suddenly interrupted or forced to change its course, if the exporter’s transportation cost or insurance cost increases and the extra cost is recovered from the buyer.

In conclusion, the agreement that the insured enters into with the insurer in exchange for a fixed premium to eliminate the uncertainty of the value of the exporter’s goods is called export credit guarantee insurance. As a result of export credit guarantee insurance, the world export trade situation continues to improve. So at present such insurance system is a popular insurance contract in the export world.