What Role Does Insurance Play in Trade Finance?

Insurance plays a critical risk mitigation role in facilitating trade finance for exporters and importers:

• Export credit insurance protects against foreign buyers' non-payment of goods and services. This allows exporters to offer flexible credit terms to boost sales.
• Marine cargo insurance covers damages and losses to shipped goods in transit caused by accidents, natural disasters, strikes, etc. This secures reimbursement for losses.
• Customs bonds guarantee that importers will fulfil all customs-related obligations for shipment clearance, avoiding penalties or storage fees.
• Trade credit insurance compensates exporters for defaults by suppliers who have taken goods and services on credit terms. This ensures the recovery of dues.
• Political risk insurance safeguards exporters and investors against losses arising from government actions such as new regulations, licence cancellation, nationalisation, etc.
• Currency fluctuation insurance provides protection when exchange rate volatility impacts the profitability of trade transactions.
• Insurance helps financial institutions provide trade credit facilities by covering risks like non-repayment. This enables funding even to high-risk profiles.
• Insurance facilitates trade with risky markets where financing is hard to obtain by absorbing some of the risks involved.