Export Credit Insurance Policy – Coverage, Benefits And Exclusions

Export Credit Insurance Policy is a form of Trade Credit Insurance Policy specifically focussed on the trading relationship with overseas buyers and protecting the receivables of exporters in India. Export Credit Guarantee Corporation of India (ECGC) provides Export Credit Insurance Policy in India.

An Export Credit Insurance Policy (ECI) protects an exporter of goods and services against the risk of non-payment by an overseas buyer. This means that if an overseas buyer fails to make payment for the goods or services received the insurance company will reimburse the seller. An Export Credit Insurance Policy is a better alternative than Letter of Credit.

What is Export Credit Guarantee Corporation of India?

Export Credit Guarantee Corporation of India, also known as ECGC, is a government owned insurance company, providing Credit Insurance Policies to exporters in India. ECGC was formed in 1957 with an objective of promoting exports.

How does Export Credit Insurance work?

The below mentioned steps present a simplified version of the workings of an Export Credit Insurance Policy:

The Exporter applies for a Credit Limit for an existing or a new customer to ECGC. ECGC approves the credit limit for the customer after submitting required documents.
The Exporter can start selling goods on credit post receiving confirmation regarding the approval of credit limits.
The Exporter needs to a lodge an Insurance Claim with the Insurance Company whenever the invoices become overdue and the Insurance Company will reimburse the Insured upto 95% of the Invoice amount in case of a claim.

What are the different types of Export Credit Insurance Policies issued by ECGC for Exporters?

ECGC issues Export Credit Insurance Policies for exporters under 3 main domains: i) Short Term Turnover Based i) Short Term Turnover Based ii) Short Term Exposure Based and iii) Medium and Long Term Based Credit Insurance Policy. The Policies issued under each domain are explained below:

Short Term Turnover Based Export Credit Insurance Policies issued by ECGC

Shipments Comprehensive Risks Export Credit Insurance Policy (SCR)

SCR Policy is provided to exporters whose annual turnover is more than Rs5 Crores. This is a standard Whole Turnover Policy where all the shipments are required to be insured under the Policy.

Small Exporters Policy (SEP)

Small Exporters Policy (SEP) is issued to small exporters whose anticipated annual turnover does not exceed Rs5 Crores. The maximum liability under the SEP Policy shall not exceed Rs2 Crores. The commercial risks and Political Risk covered under the Small Exporters Policy is similar to that covered under the Shipment Comprehensive Risk (SCR) Insurance Policy.

Specific Shipment Policy (SP)

Specific Shipment Policy can be obtained by exporters who do not have a Standard Policy or a SCR Policy. Exporter can pick and choose the shipment to be covered and can choose the type of risk cover required.

Services Policy (SRC)

A Services Policy provides insurance for technical or professional services provided by Indian Companies to Foreign Principals. The Policy provides coverage for non-payment of amount owed.

Export Turnover Policy (ETP)

Export Turnover Credit Insurance Policy is for really large exporters with a minimum premium of Rs20 lakhs based on anticipated annual export turnover of the Policyholder. It is a Whole Turnover Declaration Based Policy wherein all shipments have to be covered.

Exports (Specific Buyers) Policy (BWP)

Exports (Specific Buyers) Policy provides cover to particular buyers who do not have a Specific Policy or a Whole Turnover Policy. Exporters can avail this policy for one or more buyers.

Consignment Exports Policy (Stockholding Agent) – (CSA)

Many times, Indian Exporters utilise Stockholding Agents, who hold stocks on behalf of exporters, ready for sales to Overseas Buyers as and when orders are received. The Stockholding Agents charge a commission on such sales. ECGC has a separate Credit Insurance Policy to exclusively cover sales made on consignment basis to their Agent.

Short Term Exposure Based Export Credit Insurance Policies issued by ECGC

Buyer Exposure Policy (BEP)

Buyer Exposure Policy insures exporters with a large number of shipments to a single buyer. An exporter can choose to obtain exposure-based cover on a selected buyer for Commercial Risks and Political Risks.

IT-Enabled Services Policy-Single Customer (SITES)

IT-Enabled Services Policy-Single Customer Policy is given in respect of contracts for rendering service during a defined period with billing based on service rendered during a period of a week, a month or a quarter. One policy for one buyer shall be issued.

Micro Exporters Policy (MEP)

ECGC introduced a Micro Exporters Policy (MEP Policy) for small exporters with a turnover of less than Rs1 Crore. The MEP Policy provides cover for Commercial Risks and Political Risks.

Software Project Policy (SPP)

Software Project Policy provides protection to software and related services exporters where payment is received in foreign currency. A SPP Policy covers supply of software products, staffing and programming services. It covers both, off-shore and on-site development. The SPP Policy is meant for each contract for a particular job.

Medium and Long-Term Export Credit Insurance Policies issued by ECGC

Construction Works Policy (CWP)

A Construction Works Policy – (CWP) is designed to provide cover to an Indian Contractor who executes an overseas civil construction contract. The CWP Policy provides cover for Commercial Risks and Political Risks.

Specific Policy for Supply Contract

Specific Policy for Supply Contract is designed for exports of Capital Goods Contracts or Turnkey Contracts or Construction Works which are not of a repetitive nature and which involve medium to long-term credits. The Policy provides coverage for Commercial Risks and Political Risks.

Specific Services Policy

Specific Services Policy is issued to Indian Companies which conclude contracts with foreign principals for providing them with technical or professional services. The Policy covers risk of non-payments from such service contracts.

What are the Risks covered by an Export Credit Insurance Policy?

Export Credit Insurance Policy Coverage includes cover for following risk exposures:

Commercial Risks

An export Credit Insurance Policy provides for non -payment by the buyer on account of the following reasons:

Insolvency of the Buyer
Failure of the buyer to make payment due within specified period ,normally within four months from due date of payment.
Buyer’s failure to accept the goods (subject to certain conditions).

Political Risk Cover

An Export Credit Insurance Policy also provides cover for Political Risks which results in non-payment of amount due because of the following reasons:

Imposition of restrictions by the Government of the buyer’s country or any Government action which may block or delay the transfer of payment made by the buyer;
War, civil war, revolution or civil disturbances in the buyer’s country;
New import restrictions or cancellation of a valid import license;
Interruption of voyage outside India resulting in payment of additional freight or insurance charges which cannot be recovered from the buyer

Insolvency default of LC opening bank

An Export Credit Insurance Policy also provides cover for Insolvency of LC Opening Bank as well:

Insolvency of the L/C opening bank;
Failure of the LC opening bank to make the payment due within a specified period, normally four months from the due date;

What are the benefits of an Export Credit Insurance Policy?

An Export Credit Insurance Policy offers the following benefits:

Better Credit Terms to Buyers: An exporter can offer better credit terms to buyers since his receivables are secured with an Export Credit Insurance Policy. This allows the exporters to gain a competitive edge over their peers.
Sales in New Geographies and to New Customers: An Export Credit Insurance Policy facilitates sales to new customers and also allows to expand business in new territories since exporters can make sales without worrying about the risk of unpaid invoices since the receivables are backed by an Export Credit Insurance Policy.
Improved Credit Management: A Credit Insurance Company provides monitors the performance of customers and provides a warning in case if potential payment difficulties on the customer’s end. This allows the Exporter to take risk mitigation measures and protect himself.

What are the exclusions of an Export Credit Insurance Policy?

An Export Credit Insurance Policy does not provide coverage for the following:

Commercial disputes including quality disputes raised by the buyer, unless the exporter obtains a decree from a competent court of law in the buyer’s country in his favour;
Causes inherent in the nature of goods;
Buyer’s failure to obtain necessary import or exchange authorisation from authorities in his country;
Loss or damage to goods;
Exchange rate fluctuation;

Failure of the exporter to fulfill the terms of the export contract or negligence on his part.

What is the Cost of an Export Credit Insurance Policy?

The Cost of an Export Credit Insurance Policy is calculated as a percentage of the total export credit turnover of the company. The premium depends on factors such as creditworthiness of the customers, risk profile of the country where the goods are being exported and prior claims experience of the exporter.

Conclusion

An Export Credit Insurance Policy insures the complete export turnover of the company and not any specific transaction. Qian is an experienced Trade Credit Insurance Broker in India with experience of serving clients across diverse industries for their Credit Insurance requirements.

If you wish to purchase a Trade Credit Insurance Policy, you can email us at insurance@qian.co.in or call us on 022-22044989. We would be glad to assist you.

Export Credit Insurance Policy – Coverage, Benefits and Exclusions

What is an Export Credit Insurance Policy?