Should I invest in a government-backed insurance policy?
Face it: the UK is a small place. There’s only so far your business can expand in Britain. At some point, you’ve got to look for new opportunities abroad.
If you decide to start exporting overseas in order to build upon your company’s financial success, the research is in your favour. According to the Confederation of British Industry, companies are approximately 11% more likely to succeed if they’re exporting. Yet there are plenty of risks that go hand-in-hand with international business deals – and so a lot of UK SMEs are justifiably wary of taking the plunge.
By taking on a comprehensive export insurance policy, you should be able to hop into new markets without that nagging fear of failure. But it’s worth pointing out that not all policies are created equal.
Filling in the gaps
If you’re on the hunt for a policy to insure your exports, you’ll be pleased to find you’re spoilt for choice. As no two businesses are alike, you should sit down and compile a risk assessment of all export operations that may require some form of financial protection. Just as you should with domestic business insurance, shop around and ask questions. Once you’ve found a plan that works for your business, snap up a good deal if you can.
But the journey doesn’t end there.
When a UK company decides to export overseas, there will always be a risk that their customer doesn’t pay or delays payment for too long. Commercial export insurers are generally willing to provide some form of protection against these risks; however, there may be caveats. Sometimes, commercial providers will limit protections when exporting to certain companies or countries they deem too risky. In some cases, they may simply refuse to provide cover for operations in such markets – or will only offer premiums that are unaffordable.
That’s when it pays to have a little government support.
Even if you’ve got a commercial policy for export activities, you still may want to invest in the UK government’s Export Insurance Policy (EXIP). Run by the government’s Export Credits Guarantee Department (which trades under UKEF), the policy is essentially designed to fill the common gaps created by profit-driven commercial insurance providers so that UK businesses have the freedom to do business wherever they choose. The EXIP works in harmony with private insurers to facilitate finance for UK exporters and support loans to overseas buyers.
Through the policy, up to 95% cover is provided to the exporter, and they’re also protected against loss suffered due to a set of specified risks. Those risks include: insolvency of the buyer, a buyer’s failure to pay any amount due under export contract, political or economic events outside the UK that prevent payment or civil disturbances that affect the performance of an export contract.
The EXIP does not, however, cover damages incurred during transportation.
If you think your business could benefit from the EXIP, the application process is fairly straight-forward. Eligibility is limited to UK businesses that are trading both domestically and internationally, and coverage for less than two years can only be extended for non-EU countries or other high-income nations like the US and Australia. One of the few exceptions to that rule is Greece. In order to prove eligibility for the EXIP, you’ve also got to be able to demonstrate an inability to obtain credit insurance from the commercial market.
Once you’ve proven you are eligible to apply, you’ll need to fill out a free, non-binding indication form outlining the nature of your operations. This includes your buyer, market and the desired length of credit. You should also submit a more detailed application form. Then, UKEF will do some background research on your buyers, market and operations in order to assess whether it has an appetite to extend coverage. This process usually takes a fortnight.
Next, UKEF will give the exporter a non-binding indication outlining the terms with which it would extend protection. If all parties are happy with that, UKEF completes the underwriting process and outlines your payment requirements. EXIP premiums usually start from around £250; however, the actual cost you must pay is decided on a company-for-company basis.
From there on out, you’re ready to start trading.
It’s worth pointing out that the government’s EXIP may or may not be the best option for your company. After all, it’s only designed to fill the gaps that other policies create. If your commercial protection is sufficient, there’s no point paying for extra coverage. However, the EXIP does benefit from the financial backing of the UK Government – which might give you that extra peace of mind if you plan to do business in a volatile market.
When it comes to export insurance, just remember to do your homework, ask lots of questions and don’t be scared to seek professional advice. At the end of the day, nothing should deter you from expanding overseas. You’ve just got to make sure you’re protected, first.
Topics: Insurance & Risk