One thing the pandemic has taught everyone is uncertainty. This has given added importance to the businesses of insurance. Further, looking at the global supply chain disruption, it is now a must for exporters to make sure they mitigate the consequences of delays and be prepared for such uncertainties. Insurance policies can be of utmost significance here.
Insurance covers are required not just to help a business stay afloat in a crisis, but a cover is mandatory in several cases. A customs clearance is provided only on furnishing a certificate issued by an insurer through the portal linked to the insurance policy, says Tarun Mathur, CBO-GI, Policybazaar.com
Adding to this, Rakesh Kumar, Director General-Export Promotion Council for Handicrafts (EPCH), says exporters may suffer a huge loss if he does not get paid for an overseas shipment. “To mitigate the loss, the exporter should take a suitable insurance policy to guard himself against loss that may occur during exports.”
He explains that the need for insurance is mainly for two reasons: protracted default or insolvency of the overseas buyers. “In case of commercial consideration, the importer may not accept the bill of exchange, in case of Delivery of Payment (DP) bill he may not make payment,” he says.
For Documents Against Acceptance (DA) shipment, buyers may not remit the payment due to financial constraints or insolvency. When loss occurs, it may not be just on the shipment of goods, but can also have a big impact on the profits of the entity concerned. Hence, it becomes extremely important for exports to consider taking insurance cover,” he says.
Today, there are many insurance policies that provide export credit insurance cover on account of default and insolvency of overseas buyers. Each policy has a different percentage of cover.
Kumar says that before exporting, exporters should identify which risks (comprehensive or political) need to be covered more.
He lists some important insurance policies that exporter should take:
- Export Credit Insurance for Exporters (ECIE) – short term/ medium term/long term. ECIE can be turnover based or exposure based
- ECIE – Pre-shipment and Post Shipment
- Export Credit Insurance – Short term to be covered against bank guarantee
These can be availed from 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 that any new exporter should opt for a marine cargo policy to avoid any damage and losses due to accidents or mishaps during transits. “The main risks are either damage or loss to the cargo. Loss means that the cargo is not retrievable and damage means that the exported goods are no longer usable,” he explains.
Alternatively, an exporter may also opt for a sales turnover policy, which would cover all sales transits that need to be declared and also the internal transits between their own warehouses, and the purchase shipments as well without any charges.
Explaining further, he says a marine cargo insurance policy covers the loss or damage to property caused due to natural disasters such as cyclones, earthquakes or lightning. It also covers man-made disasters such as theft, violence, and piracy of ships, collision, overturning, or derailment of land conveyance and sinking or stranding of ships.
In terms of limitations, marine cargo insurance does not cover ordinary leakage, wear and tear of cargo, improper packaging and any delays. “Any willful misconduct and illegal activities are excluded from the policy. Damage to the cargo due to war, riot, strike, and civil commotion are also not covered. Insolvency or default by the carrier is also excluded,” he says.
Talking about the possible mistakes to keep an eye out for while claiming or availing insurance, Kumar says the exporter should clearly understand the policy provisions and accordingly opt for insurance coverage; country coverage; claim settlement time and insurance premium. “The exporter should apply for insurance policy once he has a confirmed order with clear indication of quantity and price with proper documentation so that there is clarity with respect to the policy being taken by the exporter and processing of claim in case of any unfortunate incident, is smooth,” he adds.
Points to keep in mind:
- The sum insured must be estimated judicially keeping in mind the requirements for the complete year.
- Each transit must be declared in the formats or portal provided by the insurer, as in case of a claim. All these details would be checked and in case there are any ambiguities, the claim may be denied.
- Complete due diligence and care must be taken with the goods as if they are uninsured, if the claim arises due to the negligence on the part of the client, it may be declined.
- All material facts must be declared to the insurer at the time of buying the policy as in case any information is found wrong or not furnished, there may be issues in claims later.