Export Credit Insurance
Export Credit Insurance (Printer Friendly Version)
The Central Bank of Barbados established the Export Credit Insurance Scheme in 1978 to promote and facilitate the growth of Barbados’ manufactured exports. The Scheme provides insurance cover against losses arising out of non-payment by overseas buyers for Barbadian manufactured goods.
Four (4) types of policies are available under the Export Credit Insurance Scheme:
- Global Shipments Policy
- Specific Shipments Policy
- Contracts Policy
- Services Policy
GLOBAL SHIPMENTS POLICY
The Global Shipments Policy protects the exporter from the date of shipment and in most cases covers comprehensive risks (i.e. commercial and political risks). However, where exports are to government departments or to associate firms or where exports are to be effected against a confirmed irrevocable letter-of-credit, the policy may be endorsed to cover political risks only.
The Central Bank, in the event of a default, will cover losses to the extent of 90% in case of political risks and 80% in case of commercial risks. In other words, the exporter will be required to participate in the losses to the extent of 10% in case of political risks and 20% in case of commercial risks.
The policy will be issued for a period of one year and will apply to all shipments of goods from Barbados (except those shipments specifically excluded in Schedule A to the policy) made by the exporter during that period. Shipments to buyers in any country (except those countries specifically excluded in the Country Limitation Schedule attached to the policy) will be covered.
- The Specific Shipments Policy protects an exporter who may not have regular exports of a repetitive nature but may wish to cover single transactions.
- The Contracts Policy protects the exporter from the date of contract until the date of payment. It covers goods which are made specifically for the original buyer. These policies are available on request.
- The Services Policy covers such services as technical and professional contract services, royalty payments, patent fees, aircraft and drydock repairs.
HOW TO OBTAIN A POLICY
To obtain an Export Credit Insurance Policy, the exporter is required to submit a proposal on the prescribed form to the Central Bank. The proposal requires the exporter to describe the goods to be insured and the countries to which they will be exported, the value of exports for the ensuing year and the respective terms of payment.
After processing the proposal, the Central Bank will send an Offer of Insurance Cover to the exporter. On confirmation by the exporter of acceptance of the offer of insurance, a policy will be issued.
ADVANTAGES OF CREDIT INSURANCE COVER
Export Credit Insurance is made available to exporters at a minimum cost which may be compared favourably with other types of insurance. Exporters who have export credit insurance cover are able to:
- Enter into new markets aggressively.
- Offer more liberal payment terms to present buyers and to potential buyers.
- To be more competitive in the international market.
- Obtain liberal discounting facilities from commercial banks.
Without the protection of export credit insurance, export losses could have serious consequences for the exporter.
LIMITS OF LIABILITY
The total liability of the Central Bank in respect of shipments covered under the policy will be limited to the amount of the maximum liability stated in Schedule A attached to the policy.
The amount of the credit limit for any particular buyer will be the amount specified by the Central Bank in the Approved Credit Limit Notification to the exporter.
CREDIT LIMITS ON OVERSEAS BUYERS
The exporter will be required to apply to the Central Bank on the prescribed application form for a credit limit on each buyer to be covered under the policy. The amount of the credit limit for any particular buyer will be the amount specified by the Central Bank in the Approved Credit Limit Notification. The Central Bank will not be liable for any amounts in excess of the credit limit.
The exporter will be required to obtain as much information as possible on the overseas buyer when seeking new business. This information should be included in the application for a credit limit on the buyer.
The Central Bank may use various sources to obtain credit information on the buyer and to prepare a credit profile for purposes of determining credit limits. Ordinarily, shipments to new buyers should be either on Letter-of-Credit or Sight Draft. Terms may subsequently be extended gradually in accordance with the buyer’s performance.
SPREAD OF RISKS
Exporters often enquire whether they can insure only those transactions which are likely to experience payment difficulties. In response to this query it should be noted that the ‘spread of risk’ concept which is applicable in all other fields of insurance is also applicable to export credit insurance. This concept requires the exporter to offer for insurance cover, a mix of transactions which affords the insurer an adequate spread of risks (i.e. both low and high risk transactions must be offered for insurance cover).
In practice, the Central Bank’s Export Credit Insurance and Guarantees Department makes an assessment of the risks associated with the transactions to be offered for insurance cover and by mutual consent with the exporter agrees on the transactions which will form the basis of the insurance contract. Thus, except for those transactions to be excluded by mutual consent, the exporter is required to insure all other transactions.
DUTIES OF EXPORTER
The exporter will be required to deliver to the Central Bank on or before the 15th day of each calendar month a declaration on the prescribed form of the Central Bank stating:
- All eligible shipments made by him during the previous month
- All amounts which at the end of the previous month remained unpaid, wholly or partly, for more than two months from the due date of payment, in respect of all shipments previously declared.
FEES AND PREMIUMS
The exporter will be required to pay annually a non-refundable service fee for the insurance and use of the policy.
Premiums will be quoted in the schedule of premium rates attached to the policy.
Premiums will vary according to the country to which the goods are exported and the terms of payments allowed to overseas buyers.
Premium rates will normally be in the range of 50 cents to $1.00 per BDS$100.00 of the gross invoice value of the goods. The rates of premium will be higher for those countries to which higher risks of doing business are attached.
Premiums must be paid promptly in accordance with the terms and conditions of the policy. The Central Bank will not be liable for any shipments on which premiums have not been paid.
PAYMENT OF CLAIMS
Ordinarily the Central Bank will pay claims after a ‘waiting period’ of four (4) months from the due date of payment. However, in some cases (e.g. insolvency, diversion of voyage, transfer delay) the Central Bank will pay claims one month after the ascertainment of loss. Claims must be supported by satisfactory evidence of loss. This merely requires the exporter to show that the goods were shipped and that no payment was received.
The Central Bank will not be liable for the payment of a claim unless such claim has been received in writing on the prescribed form within twelve (12) months of the date in which the loss was sustained.
The Central Bank will not be liable for loss which arises due to any dispute between the exporter and the buyer and/or due to the claim of the buyer that he is justified in withholding payment of the contract price or the gross invoice value of the goods or any part thereof.
Any sums recovered from the buyer or any other source by the exporter or the Central Bank will be divided between the Central Bank and the exporter in the same ratio in which the loss was shared. All recoveries shall first be deposited with the Central Bank.
Any expenses incurred by the exporter with the consent of the Central Bank or by the Central Bank for the purpose of effecting recoveries from the buyer or any other source shall be a first charge on any amounts recovered.
ASSIGNMENT OF POLICIES
The policy provides for assignment of the benefits of the entire policy or the assignment of the benefits of individual shipments made under the policy. If the exporter is dealing with only one bank, it would be advisable to assign the benefits of the entire policy in favour of that bank. If the exporter deals with more than one bank, he could assign the benefits of individual shipments, under the policy, to a particular bank.
To assign a policy, the exporter will be required to complete the prescribed assignment letter in triplicate and after having it signed by the commercial bank, submit it to the Central Bank.
The assignment of the Policy may not be necessary where the exporter has Post-shipment coverage under an Export Guarantee.
One of the principal benefits to an exporter of assigning his insurance policy or having post-shipment cover under an export finance guarantee is to be able to discount export bills receivable and obtain immediate cash.
BACK TO BACK INSURANCE AND GUARANTEE COVERAGE
It is prudent for exporters to have both insurance and guarantee cover. Where an exporter obtains a loan from a commercial bank to finance the production of goods for export or to finance export receivables, and where such a loan is guaranteed by the Central Bank, the guarantee will protect the commercial bank for as much as 90% of any loss incurred. However, the commercial bank and/or the Central Bank would still have recourse to the exporter for the amount of the indebtedness outstanding.
It is therefore very important that the exporter be covered by export credit insurance in order to ensure that he can meet fully any obligation to the commercial bank in the event that the overseas buyer should default or become insolvent.