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Export Risk

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Political risk - the threat that some government action will interfere with ... Aggregate policy = efficient coverage. Cargo Theft Risk ... – PowerPoint PPT presentation

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Title: Export Risk


1
Export Risk
  • By
  • Gerald Fornwald

2
3 Major Risk Types
  • Political and Economic Risk
  • Insurance Gap Risk
  • Cargo theft Risk

3
Political and Economic Risk
  • Political risk - the threat that some government
    action will interfere with export/import commerce
    in some way.
  • Can take many forms
  • Loss of property, market share, ability to
    operate, etc.

4
Political Risk Insurance
  • Allows a company to leverage against damage
    caused by a government.
  • Confiscation, expropriation and nationalization
    (CEN)
  • Indirect govt. action. (D.R.)

5
Credit Risk
  • Possibility that a customer will default on
    payment
  • Businesses fail at higher rates abroad.
  • Increased by economic and political volatility.

6
Credit Risk Insurance
  • Strong compliment to political risk ins.
  • Premiums determined by financial strength of
    customers and economic risks of the region.

7
Insurance Gaps
  • Domestic policy does not cover foreign operations
  • Many options for insuring abroad

8
Exporters Package
  • Advantages
  • property protection
  • replacement-cost
  • covers costs beyond property
  • tariffs
  • lost earnings
  • return operations to normal
  • Disadvantages
  • Not always binding
  • may be void in certain regions
  • May not meet local requirements

9
Purchase Coverage Only in Home Country
  • Advantages
  • easier to acquire and implement
  • Disadvantages
  • may be illegal
  • lose favorable tax treatment
  • premiums paid to local providers may be tax
    deductible
  • losses paid by U.S. insurer may be taxed

10
Purchase Coverage only in Local Country
  • Advantages
  • Abides by local laws
  • Optimal tax treatment will be obtained
  • Disadvantages
  • Separate policies are less efficient -- aggregate
    is cheaper
  • May not be able to receive desired coverage

11
Master Program
  • Advantages
  • Uniform coverage
  • Fills in gaps/upgrades
  • Abides by local law
  • Optimum coverage
  • Disadvantages
  • No major ones
  • price

12
Master Program Benefits
  • Difference-in-Limits endorsement
  • increases coverage limits
  • Difference-in-Conditions endorsement
  • fills coverage gaps named perils to all-risk
  • Protects against insurance company insolvency
  • Aggregate policy efficient coverage

13
Cargo Theft Risk
  • Accounts for 30-100 billion losses/year
  • Ex 1 company in Mexico claims 2M in losses
    from truck hijackings in 1999
  • Average cargo theft 500,000
  • medicine, electronics and clothing
  • 1 in theft need for 10-15 increase sales
  • Victimless crime/ No reporting system

14
Cargo Theft Insurance
  • Advantages
  • protects losses warehouse to warehouse loss or
    damage
  • Reduces the damage of enormous losses
  • Disadvantages
  • Mexico premiums rose 50 in 5 years.
  • Globally premiums rose 10 in 3 years
  • Deductibles rose from 5 to 20 in 3 years

15
Non-Insurance Alternatives
  • Global positioning systems
  • Develop standard reporting systems
  • Employee screening
  • Physical deterrents

16
Export Risks
  • Political and Credit Risk
  • Insurance Gaps
  • Cargo Theft

17
Solutions
  • Insure against local risks
  • CEN coverage credit risk insurance
  • Master Program
  • Uniform and complete coverage
  • Internal theft precautions
  • technology, screening, physical deterrents
  • BE AWARE OF NEW RISKS!
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