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Every business takes risks and there exists a wide range of insurance covers to protect them from loss in the event of many different scenarios. There is insurance provision for pretty much anything. Insuring against everything would certainly reduce risk but would be expensive and you may be paying for policies you don’t need or wouldn’t be likely to ever claim against.
On the other side of the coin, being underinsured can be disastrous, especially in an area as potentially high risk as international trade.
Here is our guide to the four core insurance policies that are common in international trade. Some of these types of cover are standard in domestic trade so you may already have them in your insurance programme. However, don’t assume that they will cover you for international trade as the risks will be higher and specific wording will be required, so ensure your insurers are fully apprised of the territories in which you operate.
As the name suggests, Product Liability insurance protects you in the event that your products cause injury or death to someone or loss or damage to other people’s property. If this happens, you could potentially be sued for compensation. Product Liability offers protection from this risk including costs and expenses.
As you might expect, if you manufacture or assemble a product then you need Product Liability insurance. However, if you design a product or even just supply products manufactured by a third party, you still need it. Different countries have different laws and some will apply a strict liability to injuries or damage caused by faulty goods. As the supplier (including online sales), even though you didn’t make it, you can still be liable. A supplier is more exposed if the manufacturer has gone out of business. Anyone in the supply chain can be dragged into legal actions and legal defence costs alone can be significant. It is worth noting that even if your distributors or representatives in an overseas market says they have covered the risks, you should have sight of the insurance that covers your products to be relieved of the responsibility and added as a named insured to that policy where possible
Physically moving goods comes with risk. However you transport your products, be it road, rail, sea or air, you need to make sure that they are insured in transit. Marine, Cargo and Transit insurance policies cover goods as they move between your premises and your international customer.
This depends really on who carries the risk while products are in transit. See our Incoterms® 2020 tool Please link to our slider and Incoterms bot. It could be you as the seller, your customer, or even the carrier. Clearly, if it has been agreed that you are responsible as the seller (which many customers prefer, for obvious reasons) then you need an appropriate type of insurance for the methods of transport used. However, even if the risk lies with the customer, it is important to know what insurance cover they have in place, ideally a copy of the document carrying the reference, as it could potentially be inadequate. In this case you may wish to take out contingency insurance.
Professional indemnity (PI) insurance covers you in the event of you providing negligent or sub-standard services or advice that caused harm or damage in some way.
Any business that provides advice, knowledge, skills, or design services needs PI cover. If you offer these services on an international basis then this needs to be specified in the policy. Again, the different laws and even culture in overseas markets can vary widely. For example, the USA is renowned for being particularly litigious and subject to large compensation payouts, and this needs to be mitigated.
Clearly, insurance is a complex area and this article provides a very brief overview. Further details about each individual type of insurance can also be found on the Open Borders Direct® site.
Trade Credit insurance gives businesses protection in the event their customers do not pay their invoice and therefore protects against bad debt. In light of the increased number of insolvencies due to the economic downturn caused by the global pandemic, Trade Credit insurance is becoming more and more in demand.
Many companies, small and large, buy Trade Credit insurance to protect their cash flow, giving companies more confidence to achieve their growth plans and trade internationally, where there are more “unknowns” than doing business domestically in the home country. Trade Credit enables companies to offer their customers credit terms (instead of requiring payment for goods upfront) and is often sued to help secure funding from banks (since banks recognise the value of your receivable assets being insured rather than being unsecured).
