What insurance options are available and why are they important?
Lesley Batchelor OBE is Director General of the Institute of Export, the professional membership body for everyone involved in international trade. Here she gives an overview of the different insurance options available and their significance.
What types of insurance do I need to export?
When we start to trade internationally you will realise that everyone talks about insurance in very different terms. The introduction is an attempt to provide you with an overview of what each type of insurance does and where it might impact on your international business and in some cases on your ability to trade profitably.
In some markets Product Liability and Professional Indemnity premiums are very high mainly due to the high level of litigations that are brought to trial mainly, USA & Canada. These markets attract such a huge amount of legal activity and insurers will add a lump sum to the annual premium (upwards of £5K) and add more as they determine the level of risk they are exposing themselves to in this market.
When travelling in the USA you will see attempts to mitigate against these actions in the warning on the coffee cups of ‘caution hot’ and even on a hammer a note ‘not to be used on human flesh’ – product liability to an extreme!
Over this section we will explore the various elements of Insurance in terms of impact on international trade and explain some of the terms that are commonly used.
Main insurance options
This cover protects you in the event that your product causes injury or damage to a person or their property. You could be liable to pay compensation in these circumstances even if you didn’t manufacture the product, and the costs can be severe.
Types of insurance – Professional indemnity
This insurance covers the cost of compensating clients for loss or damage resulting from negligent services or advice provided by a business or an individual.
Types of insurance – Trade Risk insurance
- In Transit
- Free on board (FOB)
- Worldwide cover (including Open policy/Declaration policy)
Some common issues from not insuring
Remember you always have the option of not insuring but you may find that the repercussions are much more wide spread than you think. Some examples of issues that international trade can face:
If your cargo is uninsured and the paperwork is deficient in any way, the goods arrive at the port/airport of destination but will sit on the dock side/warehouse accruing charges until cleared. This will mean charges and probably a rejection could mean the return of the goods, extra costs or the destruction again more costs or if you’re lucky just additional charges before the goods are cleared to continue their journey to the customer.
Software failing to perform
If a software product fails to perform properly, it may not cause physical, personal, or advertising damages, therefore the general liability policy would not be triggered; it may, however, directly cause financial losses which could potentially be attributed to the software developer’s misrepresentation of the product capabilities.
Custom designed products
If a custom-designed product fails without causing damage to person or property other than to the subject product itself, a product liability policy may cover consequential damages such as losses from business interruption, but will generally not cover the cost to redesign, repair or replace the failed product itself. Claims for these losses against the manufacturer may be covered by a professional liability policy.
For more on the common issues that insurance can help you avoid or allay, read Open to Eport’s ‘Insure to ensure you get paid’ article.
Be aware of the risks you’re exposing you company to. These risks if faced in the UK are a nuisance but, internationally they will drain your business of time and money in both legal costs both here and in the market where you have sold and air fares.