Contracts and Shipment Policies

An exporter may either take a comprehensive risks policy covering both political and commercial risks or secure himself against political risks alone, if he so chooses. Though normally the cover starts from the date of shipment, in the case of goods manufactured according to the buyer’s specifications and which cannot easily be sold to alternate buyers, covers could be provided from the date of contract under the Contracts (Comprehensive or Political Risks) Policy.

Consignment Exports:
Exports made on a consignment basis may be covered by ECGC by a special endorsement. This would provide cover against political risks from the date of shipment and against commercial risks from the date of sale of the overseas stock to a buyer subject to the terms and conditions of the policy.

Basic Principles:
There are two basic principles on which the ECGC operates:
(1) Spread Of Risks-An exporter is normally expected to insure the whole of his turnover for a minimum period of 24 months other than those transactions which are covered by irrevocable letters of credit which carry the confirmation of the Indian banks. Where an exporter deals in different types of goods, he may insure the allied items, excluding those which are not allied. The exporter cannot pick and choose bad risks only for insurance. This is also necessary to reduce premia in general.
(2) An Exporter is a Co-insurer-The ECGC covers only 90% of the loss. The insurer will have to bear the rest of the risks. This is necessary to ensure that (i) the exporters also takes necessary precautions in selecting the parties to which he may decide to export(ii) he may not overextend credit, and (iii) he may take all possible care to minimize the risk.

Under a new scheme introduced, the ECGC has decided to issue specific shipment policies to cover one or more shipments only depending on the exporters’ requirements. Three types of specific shipments policies have been evolved. The exporter can exercise option to cover both commercial and political risks or only political risks where shipments are made on L/C terms. A separate policy is available to cover shipments made under letters of credit against the risks of insolvency and default of the L/C opening bank and political risks. This policy cover can be availed of by exporters who do not hold ECGC’s standard policy or even by those holding it to cover the shipments permitted to be excluded from the purview of the standard policy. The policy would be valid from the date of issue to the last date of shipment allowed under the relevant contract. The coverage of risk is 80 percent.

The premium rates are closely related to the risks involved and depend upon (i) length of the credit, (ii) terms of payments, (iii) creditworthiness of the buyer and his country, and (iv)past record of the exporter. Depending on the combination of the payment terms and the country group, the premium may range from 0.07 percent to 3.5percent. ECGC’s premium rates are one of the lowest among credit insurers of the world.

Specific Policies:
Contracts for export of capital goods or projects for construction works and for rendering services abroad are insured by ECGC on case-to-case basis under specific policies. Special mention may be made of the services policy to protect Indian firms against payment for their services and the construction works policy to cover all payments that fall due to a contractor under a composite contract for execution of civil engineering works which may involve provision of services as well as supply of material.

Comments are closed.