exports: how to obtain different export insurance policies

One thing the pandemic has taught everyone is uncertainty. This has given increased importance to the insurance business. Furthermore, given the disruption in the global supply chain, it is now essential for exporters to ensure that they mitigate the consequences of delays and prepare for such uncertainties. Insurance policies can be of utmost importance here.

Insurance coverages are necessary not only to help a business stay afloat in a crisis, but coverage is mandatory in many cases. A customs clearance is only provided upon presentation of a certificate issued by an insurer through the portal linked to the insurance policy, explains Tarun Mathur, CBO-GI, Policybazaar.com

Moreover, Rakesh Kumar, Managing Director of Export Promotion Council for Handicrafts (EPCH), says that exporters can suffer a huge loss if he is not paid for overseas shipment. “To mitigate the loss, the exporter must take out an appropriate insurance policy to protect against losses that may occur during exports.”

He explains that the need for insurance is mainly due to two reasons: a prolonged default or the insolvency of foreign buyers. “In case of commercial consideration, the importer may not accept the bill of exchange, in case of payment delivery invoice (DP), he may not make the payment,” he says.

For Document Against Acceptance (DA) shipment, buyers may not remit payment due to financial constraints or insolvency. When a loss occurs, it may not only relate to the shipment of goods, but may also have a significant impact on the profits of the entity concerned. Therefore, it becomes extremely important for exports to consider getting insurance,” he says.

Many insurance policies today provide export credit insurance coverage against the default and insolvency of foreign buyers. Each policy has a different coverage percentage.

Kumar says that before exporting, exporters need to identify the risks (global or political) that need to be further hedged.

It lists some important insurance policies that the exporter should take out:

  • Export Credit Insurance for Exporters (ECIE) – short term/medium term/long term. ECIE can be turnover or exposure based
  • ECIE – Before shipment and after shipment
  • Export credit insurance – Short term to be covered against bank guarantee

These can be obtained from the Export Credit Guarantee Corporation of India (ECGC). There are also private players such as ICICI and IFFCO-Tokyo who provide these covers to exporters.

Mathur says any new exporter should opt for a sea freight policy to avoid any damage and loss due to accidents or mishaps during transits. “The main risks are either damage or loss of cargo. Loss means the cargo is not salvageable and damage means the exported goods are no longer usable,” he explains.

Alternatively, an exporter can also opt for a turnover policy, which would cover all sales transits that must be declared as well as internal transits between their own warehouses, as well as purchase shipments without any charge.

Explaining further, it says that a marine cargo insurance policy covers property loss or damage caused by natural disasters such as cyclones, earthquakes or lightning. It also covers man-made disasters such as ship theft, violence and piracy, collision, overturning or derailment of land transport and sinking or grounding of ships.

In terms of limitations, ocean freight insurance does not cover ordinary leaks, freight wear and tear, improper packaging and delays. “Willful misconduct and illegal activities are excluded from the policy. Cargo damage due to war, riots, strikes and civil unrest is also not covered. Insolvency or default of the carrier is also excluded,” he says.

Talking about possible mistakes to look out for when claiming or taking out insurance, Kumar says the exporter should clearly understand the provisions of the policy and opt for insurance cover accordingly; country coverage; the claims settlement period and the insurance premium. “The exporter should apply for an insurance policy once they have a confirmed order with a clear indication of quantity and price with proper documentation so that there is clarity regarding the policy taken by the exporter and the handling of the claim in the event of an unfortunate incident, is smooth,” he adds.

Points to keep in mind:

  • The sum insured must be judicially estimated taking into account the requirements of the full year.
  • Each transit must be declared in the formats or portal provided by the insurer, as in the event of a claim. All these details would be checked and in case of ambiguity, the claim could be denied.
  • Full due care and care must be taken of the goods as if uninsured, if claim arises due to customer negligence it may be refused.
  • All material facts must be declared to the insurer at the time of purchasing the policy, because if information is found to be wrong or not provided, there may be problems in claims later.
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