Exporting to international markets can boost your business, but it also introduces risks like political instability and non-payment by foreign buyers. To safeguard your operations, two main insurance options are available: Export Credit Insurance and Standalone Political Risk Insurance (PRI). Here’s a quick breakdown:
- Export Credit Insurance: Protects against both commercial risks (e.g., buyer insolvency) and political risks (e.g., war, terrorism). It typically covers 90–95% of insured sales at a cost of less than 1% of the total sales value.
- Standalone Political Risk Insurance (PRI): Focuses specifically on political risks like expropriation, currency inconvertibility, and political violence. It’s tailored for high-value transactions or projects in unstable regions.
Key Differences:
- Export Credit Insurance suits businesses with broad international sales.
- PRI is ideal for specific, high-risk investments or projects.
Both options help U.S. businesses manage risks and maintain financial stability in global trade. Choosing the right one depends on your risk exposure and operational needs.
Credit Insurance as a Risk Mitigation Tool for International Trade
1. Export Credit Insurance
Export credit insurance plays a key role in managing the risks associated with international trade. Designed specifically for U.S. exporters, this insurance provides financial protection against non-payment by foreign buyers, addressing risks that go beyond the scope of standard policies.
Scope of Coverage
This type of insurance covers a range of risks, including commercial risks like buyer insolvency, bankruptcy, or prolonged defaults, as well as political risks such as war, terrorism, riots, revolutions, currency restrictions, expropriation, and regulatory changes. For claims involving foreign public entities, these are categorized under political risks, highlighting the complexities of cross-border transactions.
However, it’s important to note that export credit insurance does not cover physical loss or damage to goods during transit. Such risks are typically handled by marine, fire, casualty, or other specialized insurance policies.
Coverage terms vary depending on the type of transaction. Short-term policies cover consumer goods and services for up to 180 days, while larger transactions may be insured for up to 360 days. Medium-term policies, on the other hand, extend coverage for large capital equipment sales for up to five years.
Eligibility Requirements
The Export-Import Bank of the United States (EXIM) sets specific eligibility standards for businesses seeking export credit insurance. General requirements include operating for at least three years, employing at least one full-time worker, and maintaining a positive net worth. Additionally, businesses must export products made in the U.S. or services provided by U.S.-based workers, typically meeting a minimum threshold of 50% U.S. content.
For small businesses, the criteria are slightly more flexible. Companies need only one year of operational history, provided they still meet the full-time employee and net worth requirements. All applicants must also register with SAM.GOV, secure a Dun & Bradstreet Number, and obtain a Unique Entity Identifier (UEI).
There are restrictions, however. EXIM does not support military products or transactions involving foreign military buyers, and its support may be limited in certain countries due to U.S. government policies.
Policyholders
Export credit insurance caters to a diverse group of U.S. exporters, from well-established manufacturers to newer service providers. Both private insurers and EXIM offer single-buyer and multi-buyer policies. Multi-buyer policies are particularly appealing for companies with a broad international customer base, as they generally cost less than 1% of insured sales while offering 90–95% coverage for both commercial and political risks. For medium-term policies, exporters of capital equipment can receive coverage for 85% of the net contract value.
Claims Process
Understanding the claims process is just as important as knowing the coverage details. Before approving an application for export credit insurance, EXIM evaluates the creditworthiness of the foreign buyers involved. This initial review ensures realistic coverage terms and pricing structures.
Policyholders are responsible for a portion of any loss – typically 5–15%, depending on the policy. Claims may be denied if policyholders fail to adhere to the terms of their agreement. This shared responsibility encourages exporters to exercise due diligence in their international dealings, while still providing meaningful protection against unexpected commercial or political disruptions.
For more information on how export credit insurance can protect your business, visit CreditInsurance.com.
2. Standalone Political Risk Insurance
Unlike export credit insurance, which provides broad protection for a company’s entire portfolio, standalone political risk insurance (PRI) focuses on safeguarding specific transactions or projects. This tailored approach is particularly effective for businesses navigating high-risk international markets.
Scope of Coverage
Standalone PRI is designed to protect against unpredictable political events that could disrupt business operations. Pierre Lamourelle, Deputy Global Head of Specialty Credit at Allianz Trade for Multinationals, explains:
"When it comes to political risk, we say it could be defined to a certain extent by its unpredictability. Contrary to most other types of insurance, it’s not always possible to model this type of risk based on historic data."
The coverage is customized to meet the unique needs of each transaction. Lamourelle adds:
"For companies, political risk insurance can cover, for example, non-payment of a cargo or the non-performance of a contract. When it comes to banks, we cover their full spectrum of transactions from export finance to trade finance, to infrastructure finance, asset-based finance, and structure-trade finance. So, it’s a tailored solution."
Here’s a closer look at the types of risks PRI addresses:
| Coverage Type | Description |
|---|---|
| Expropriation, Confiscation, or Nationalization | Protects against losses from government actions that seize private property, either without compensation or through nationalization of industries. |
| Inconvertible Currency | Shields businesses when a foreign government declares its domestic currency inconvertible, preventing currency exchange or transfers out of the country. |
| Trade Embargoes | Offers protection if a government imposes embargoes restricting the import or export of goods or bans trade with specific countries. |
| Political Violence | Covers risks stemming from political events such as riots, strikes, terrorism, war, or other violent acts that disrupt business operations. |
| Breach of Contract | Steps in when a government fails to honor a contract, cancels it, forces renegotiation, or refuses to pay damages agreed upon during arbitration. |
| Failure of Sovereign Financial Obligations | Helps businesses if a foreign government defaults on its debt or fails to meet unconditional financial payment obligations. |
This tailored coverage ensures businesses can mitigate risks tied to specific, often volatile, scenarios.
Policyholders
Standalone PRI is utilized by a broad spectrum of international businesses, extending well beyond traditional exporters. Key policyholders include multinational corporations, importers, exporters, project lenders, financial institutions, capital markets participants, foreign investors, and contractors.
Industries like infrastructure development – spanning construction, energy, and natural resources – are among the most frequent users of PRI. These companies often operate in politically unstable regions where risk is heightened. Financial institutions also rely heavily on PRI to protect loans and investments across geopolitical regions.
In many cases, investors drive the purchase of PRI, as it not only provides protection but also meets the credit requirements of financial institutions’ credit committees.
Claims Process
The claims process for standalone PRI can be intricate, often involving arbitration across multiple jurisdictions. A notable example is CalEnergy Company Inc. (now MidAmerican Energy Holdings Company), which insured its geothermal power projects in Indonesia – Patuha and Himpurna – with political risk insurance. When disputes arose, the company relied on its PRI coverage for expropriation and non-payment of arbitral awards rather than pursuing enforcement actions against assets.
In another case, Phelps Dodge Corp. & OPIC vs. the Islamic Republic of Iran, OPIC provided coverage for Phelps Dodge’s investment, enabling recovery under the terms of the PRI policy. The insurer’s standing was not contested during the proceedings, illustrating the value of PRI in resolving disputes with sovereign entities.
These examples highlight how PRI serves as a critical tool for businesses, enabling recovery when traditional legal remedies fall short. It proves especially effective in disputes involving governments or other sovereign entities.
sbb-itb-b840488
Advantages and Disadvantages
This section takes a closer look at the pros and cons of export credit insurance and standalone political risk insurance, two options that help businesses manage political risks and safeguard international trade operations.
Export Credit Insurance
Export credit insurance offers broad protection, covering both commercial and political risks, as outlined earlier. This type of coverage allows exporters to provide competitive open account terms to foreign buyers while also improving access to attractive financing options. Multi-buyer policies are often quite cost-effective, typically priced at less than 1% of insured sales. For instance, in 2021, British companies secured nearly 14,000 trade credit insurance policies, with ABI members insuring close to £320 billion in turnover.
However, there are some limitations to consider. High-risk accounts may not be covered, or if they are, the premiums can be significantly higher. Additionally, export credit insurance might not address every nonpayment scenario, such as late or slow payments, disputes over goods or services, or quality concerns. As Atradius points out, while the benefits often justify the costs, insurers may decline coverage if the perceived risk is too high.
Standalone Political Risk Insurance
Standalone political risk insurance focuses specifically on political risks, offering tailored coverage for businesses operating in unstable regions or handling large-scale investments. This targeted approach is especially valuable for high-value transactions where political uncertainty poses a significant threat. However, these policies may not cover every possible political risk and require careful evaluation to ensure they align with a company’s specific needs.
Key Comparison
Here’s a side-by-side look at the main features of these two options:
| Criteria | Export Credit Insurance | Standalone Political Risk Insurance |
|---|---|---|
| Coverage Scope | Covers both commercial and political risks | Focuses exclusively on political risks |
| Cost Structure | Generally less than 1% of insured sales for multi-buyer policies | Costs depend on the risk level of the transaction |
| Coverage Level | 90–95% for short-term and about 85% for medium-term policies | Customizable based on specific needs |
| Flexibility | Standardized policies | Highly tailored to individual transactions or projects |
| Claims Process | Streamlined for standard claims | Can vary depending on the complexity of the claim |
| Risk Assessment | May exclude high-risk accounts | Designed for high-risk political environments |
Choosing the Right Option
The decision between these two types of insurance often hinges on a company’s risk exposure, the nature of its transactions, and its operational priorities. Export credit insurance is ideal for businesses with a broad international sales portfolio seeking comprehensive protection. On the other hand, standalone political risk insurance is better suited for companies managing specific, high-value investments or projects that require customized coverage.
For businesses navigating the complexities of international trade, CreditInsurance.com offers resources to help you understand these options. Their guidance can assist in protecting against non-payment, insolvency, and political risks while enabling growth through increased credit lines and better financing opportunities. By weighing the trade-offs, companies can choose the coverage strategy that best aligns with their unique risk profiles and goals.
Conclusion
Safeguarding your business means aligning your insurance coverage with the specific risks tied to your trade operations. Export credit insurance provides broad protection against both commercial and political risks, making it a versatile option for exporters and global traders. On the other hand, standalone political risk insurance is designed for businesses with substantial investments in politically unstable regions. While this type of coverage tends to be more specialized and costly, it addresses risks that standard policies might not, such as nationalization, currency inconvertibility, and political violence. Choosing the right policy depends on understanding these differences and matching them to your business needs.
As highlighted earlier, your choice of insurance should reflect your business model and risk exposure. Exporters often benefit from export credit insurance, which shields them from both political and economic uncertainties. Meanwhile, multinational companies with significant investments in volatile regions may require the more focused protection of political risk insurance. High-value deals or transactions in unpredictable markets might also call for this specialized coverage.
This conversation becomes even more relevant when considering the rising challenges businesses face. For example, U.S. business bankruptcies increased by 23.5% in 2025, emphasizing the importance of robust trade credit protection. In 2022 alone, over $7 trillion in shipments were insured through export trade credit insurance, showcasing how businesses are prioritizing risk management to safeguard their financial health and growth potential.
For tailored guidance, CreditInsurance.com offers tools and expertise to help you navigate credit and political risk assessments. Their support ensures that your coverage aligns with your operations and geographic focus, equipping your business with the resilience and confidence needed to thrive globally.
FAQs
What should I consider when deciding between export credit insurance and political risk insurance for my business?
When choosing between export credit insurance and political risk insurance, it’s important to assess your business’s unique needs and the types of risks you’re most exposed to.
Export credit insurance primarily shields businesses from nonpayment risks, such as a buyer’s inability to pay due to insolvency or default. It may also provide limited protection against some political risks, like war or restrictions on currency transfers. In contrast, political risk insurance focuses more directly on geopolitical threats, including expropriation, political violence, or government actions that could disrupt your investments.
To make the best choice, think about the coverage scope, costs involved, and whether your business needs broader protection for trade credit risks or more specific safeguards against political instability. Matching these factors to your trade and investment profile can help ensure your business stays protected.
What are the key differences in the claims process between export credit insurance and political risk insurance, and what should businesses keep in mind?
The claims process for export credit insurance tends to be more straightforward, as it primarily deals with non-payment issues like a buyer’s insolvency or default. Once a claim is filed, the insurer evaluates the situation and reimburses the exporter for the covered loss, provided all policy conditions are met.
On the other hand, filing a claim under political risk insurance can be more complex. Policyholders must demonstrate that a specific political event – such as government interference or expropriation – directly caused their financial loss. This often requires extensive documentation and verification, particularly for claims involving disruptions in delivering goods or receiving payments.
It’s important for businesses to recognize the distinct focus of these two types of insurance. Export credit insurance addresses a wide range of trade credit risks, while political risk insurance is tailored to losses stemming from political events. Understanding the unique requirements of each policy can make the claims process smoother and more efficient.
When should a business choose standalone political risk insurance instead of export credit insurance?
Businesses often choose standalone political risk insurance when they need targeted protection against particular political challenges like currency inconvertibility, government expropriation, or political violence. These risks typically fall outside the scope of standard export credit insurance policies.
This type of insurance is especially useful for companies working in emerging markets or regions with unstable political conditions. It gives businesses the ability to customize their coverage to address risks tied to specific countries or political events. By focusing solely on political risks, this option avoids bundling with broader commercial risk protections, offering a more precise solution for safeguarding investments and operations in high-risk areas.
