How Insurance Protects Export and Import Goods

Uzone.id – For companies active in international trade, export and import risks are among the most significant business risks. External factors such as natural disasters, currency fluctuations, and unstable politics will impact their business. 

This factor makes insurance important for every item that travels between countries, whether by sea, air, or land. Insurance protects goods that are exported and imported and provides financial security for business people in the global market.

Various factors, such as negligence of the delivery service, theft, exchange, or other unexpected events, can cause loss or damage to goods. In addition, the political situation can also cause delays in the delivery process; even in the worst-case scenario, the delivery can be canceled.

Insurance acts as safety for businesses engaged in international trade. Companies and consumers can reduce financial losses with compensation from the insurance side. In addition, insurance will provide a feeling of security because the goods will always be protected.

In some cases, insurance is required to comply with legal regulations or as a condition in a business contract. Usually, this policy is included in cargo insurance to protect the goods from damage during transportation. 

Before the goods are transported, the company is responsible for packing, organizing, and loading them. The bill of lading will include “freight prepaid.” Under Cost, Insurance, and Freight (CIF), sellers are required to purchase a cargo insurance policy—companies only need to buy a general policy—to obtain minimum protection.

Later, the buyer (the buying company) will be responsible for bearing the cost of dismantling the goods, import duties, tariffs, and additional transportation costs to the destination. All fees will be paid according to the currency written in the contract.

Marine insurance is also specifically designed to protect means of transportation used to transport goods. Marine insurance policies cover losses and damages incurred on ships, terminals, and all carriers or cargo vessels used to move, acquire, or store goods between the Port of origin and the final destination—Gallagher’s site source.

Export and import goods insurance policies to avoid political risks

Instability or changes in the political situation, such as war, terrorism, and civil unrest—such as what happened in the Arabs in 2011 or what is happening in Ukraine—will significantly affect how businesses run. Their unpredictable nature is not beneficial to the business side or its consumers.

Restrictions in exports and imports will be the main problems faced by companies engaged in the international market. In the event of a restriction, the goods sold will slowly lose value. Then, in the most unfavorable situation, the company can go out of business (go bankrupt). 

On the business side, companies engaged in international trade often take out Political Risk Insurance (PRI), a type of insurance designed to help protect businesses moving globally from financial losses incurred due to political changes or instability, Allianz said. 

This insurance is not mandatory but is commonly used by large exporters, international contractors, and money banks facing the risk of contract termination. This risk does not directly impact any developing country, but it does directly affect businesses in the US. 

Still launching on the Allianz website, PRI will compensate for events that occur during the policy period through the agreement that was signed previously. This insurance covers several aspects, including:

1. PRI will prevent losses caused by government actions involving the seizure of private property for public use with or without compensation to property owners or expropriation of ownership of assets.
2. PRI will also help protect businesses when domestic currencies cannot be exchanged. 
3. PRI also protects importers and exporters if the government imposes an embargo that prohibits the import or export of certain goods into or outside the country, even if trade with certain countries is banned. 
4. PRI will intervene if the government meets the contract’s requirements, cancels the contract, and refuses to pay compensation during arbitration.
5. PRI will also help manage businesses if foreign governments default on debts or honor unconditional financial payment obligations. 

Protecting goods in the export and import process is just as crucial as buying other insurance policies. Investors will trust companies that commit to asset protection, one of which is purchasing insurance policies.