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Secrets of International Trade

Responsibility for Insurance
 

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Part 2

 

  

 
 

Insurance arranged by the foreign importer may only be for their own benefits if the goods are damaged or destroyed -- the importer will be the one to receive compensation.

Very often, the exporter will quote a C.I.F. price to its foreign customer.
 
This is an export price that includes the cost of the goods, the insurance and the freight, to a named point of destination.


If the quotation is accepted, the exporter will automatically be responsible for arranging the marine insurance.
 

Even though the export price may be F.A.S. (free along side, named point of shipment), the exporter may still be responsible for arranging the marine insurance.
 

This would be so if the exporter has made it one of the terms of the export sales contract.
 

In this case, the cost of the insurance would be billed as a separate expense, additional to the F.A.S. or F.O.B. sales price.
 

Such insurance might include war risk insurance as well as straight marine insurance.
 

If it is stipulated that payment to be by letter of credit, the issuing bank in the foreign importer's country will insist on having marine insurance - even though the export price quoted is F.A.S. or F.O.B.
 

Because the bank will wish to protect its own financial interest should the goods be damaged or destroyed in transit.
 

 

 
 

Advantages of Arranging Insurance

It is highly desirable, whenever possible, to arrange the insurance from the exporter's point of view, because:
 

1. The export firm, with its specialized knowledge of the product, is able to ensure that the coverage meets its exact requirements, and that the coverage is with an insurance company of its choice.

 

2. Any claim is payable in the exporter's own currency, thereby eliminating the risk of an exchange loss.

 

3. If the goods are being sold on credit, the exporter is financially at risk while the goods are in transit to their foreign destination. 
 

It is reassuring to know, in this case, that reimbursement can be sought from a local insurance company if something happens to the goods.
 

 

 
 
4. If the exporter's bank is involved in providing credit, it will usually insist that the exporter take out insurance on the shipment.
 

The certificate of insurance protection will then form part of the  commercial set of documents that is required for each export shipment.

5.Claims are usually settled faster if the exporter has arranged the insurance with its own marine underwriter.
 

 

6. If the exporter relies on the foreign importer to arrange for the insurance, as he may have to when selling F.A.S. or F.O.B., he faces various risks, such as:
 

(a) The foreign importer may have neglected to insure the goods.

Then, if the importer refuses to accept them on the grounds that they are damaged, the exporter will have his goods sitting in a foreign port with no insurance protection.
 

(b) The insurance arranged by the foreign importer may only be for their own benefits. Even if the goods that are damaged or destroyed are sold by the exporter on credit. The importer will be the one to receive compensation.
 

(c) However justifiable the insurance claim, it is much more difficult for the exporter, because of the distance and language problems, to secure compensation from abroad than from the insurance company at home.

 

7. One method is for the exporter to deal directly with a marine insurance company. In this case, the export firm specifies its needs and the company prepares suitable coverage.

 
 
Part 1/2
Insurance for Exporters and Marine Insurance Defined

 

 
 
Part 2/2 < This Page
Responsibility for Insurance & Advantages of Arranging Insurance
 
 
 

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