History of Export Credit Insurance
Export credit insurance is a form of insurance that companies can purchase to protect against non-payment or non-delivery of payments from buyers from foreign countries. This insurance can also protect companies from political risks, such as war and civil unrest. Export credit insurance helps make it easier for companies to execute their international business transactions with confidence.
The concept of export credit insurance has been around in various forms since the early 18th century. The oldest known export credit insurer was founded in the Netherlands in 1705, followed by England in the late 1700’s. The development of export credit insurance has been driven primarily by governments who wanted to encourage their exporters to do business in foreign markets and to protect the credit risks of their exporters.
In the 19th century, governments began to develop export credit agencies to help their exporters. These agencies provided support to exporters through the loan guarantees, subsidies, and insurance programs, which often covered losses due to foreign government government defaults or other forms of political risk. In the early 20th century, private insurers began offering export credit insurance, as well.
In the United States, the agency responsible for providing export credit insurance is the Export-Import Bank of the United States which was created in 1934. The Export-Import Bank’s mission is “to facilitate and support U.S. exports by providing financial guarantees and direct loans.” The Export-Import Bank has the authority to guarantee up to $5 billion of export credits, which it does in collaboration with private insurers.
Export credit insurance continues to evolve as risk exposures become more complex and difficult to evaluate. Today, export credit insurance is a key component of international business transactions, helping companies protect themselves from foreign non-payment and other risks associated with foreign trade.
In addition to the government and private export credit insurers, a variety of risk management services have been developed to help companies better manage the risks associated with international trade. These services are designed to provide exporters with knowledge and tools to evaluate potential buyers and their creditworthiness prior to entering into export transactions. This can help to minimize the risks of non-payment or non-delivery, helping companies protect themselves and ensure that their international transactions are successful.
Export credit insurance has been a vital component of international trade for centuries and continues to be an important risk management tool today. With advances in risk assessment technologies and other risk management services, companies can now take greater control over their export transactions and better manage their foreign credit risks.
