Export Risk

1
Export Risk

• By
• Gerald Fornwald

2
3 Major Risk Types

• Political and Economic Risk
• Insurance Gap Risk
• Cargo theft Risk

3
Political and Economic Risk

• Political risk - the threat that some government
  action will interfere with export/import commerce
  in some way.
• Can take many forms
• Loss of property, market share, ability to
  operate, etc.

4
Political Risk Insurance

• Allows a company to leverage against damage
  caused by a government.
• Confiscation, expropriation and nationalization
  (CEN)
• Indirect govt. action. (D.R.)

5
Credit Risk

• Possibility that a customer will default on
  payment
• Businesses fail at higher rates abroad.
• Increased by economic and political volatility.

6
Credit Risk Insurance

• Strong compliment to political risk ins.
• Premiums determined by financial strength of
  customers and economic risks of the region.

7
Insurance Gaps

• Domestic policy does not cover foreign operations
• Many options for insuring abroad

8
Exporters Package

• Advantages
• property protection
• replacement-cost
• covers costs beyond property
• tariffs
• lost earnings
• return operations to normal

• Disadvantages
• Not always binding
• may be void in certain regions
• May not meet local requirements

9
Purchase Coverage Only in Home Country

• Advantages
• easier to acquire and implement

• Disadvantages
• may be illegal
• lose favorable tax treatment
• premiums paid to local providers may be tax
  deductible
• losses paid by U.S. insurer may be taxed

10
Purchase Coverage only in Local Country

• Advantages
• Abides by local laws
• Optimal tax treatment will be obtained

• Disadvantages
• Separate policies are less efficient -- aggregate
  is cheaper
• May not be able to receive desired coverage

11
Master Program

• Advantages
• Uniform coverage
• Fills in gaps/upgrades
• Abides by local law
• Optimum coverage

• Disadvantages
• No major ones
• price

12
Master Program Benefits

• Difference-in-Limits endorsement
• increases coverage limits
• Difference-in-Conditions endorsement
• fills coverage gaps named perils to all-risk
• Protects against insurance company insolvency
• Aggregate policy efficient coverage

13
Cargo Theft Risk

• Accounts for 30-100 billion losses/year
• Ex 1 company in Mexico claims 2M in losses
  from truck hijackings in 1999
• Average cargo theft 500,000
• medicine, electronics and clothing
• 1 in theft need for 10-15 increase sales
• Victimless crime/ No reporting system

14
Cargo Theft Insurance

• Advantages
• protects losses warehouse to warehouse loss or
  damage
• Reduces the damage of enormous losses

• Disadvantages
• Mexico premiums rose 50 in 5 years.
• Globally premiums rose 10 in 3 years
• Deductibles rose from 5 to 20 in 3 years

15
Non-Insurance Alternatives

• Global positioning systems
• Develop standard reporting systems
• Employee screening
• Physical deterrents

16
Export Risks

• Political and Credit Risk
• Insurance Gaps
• Cargo Theft

17
Solutions

• Insure against local risks
• CEN coverage credit risk insurance
• Master Program
• Uniform and complete coverage
• Internal theft precautions
• technology, screening, physical deterrents
• BE AWARE OF NEW RISKS!