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Credit insurance dries up for exporters
Prashant K Sahu in New Delhi | October 24, 2008 10:33 IST
Fearing huge losses, insurance firms have also stopped covering pre-shipment risks as a slowdown in developed markets may lead to cancellation of orders placed with Indian exporters, insurance company sources told Business Standard.
While the demand for trade credit insurance has gone up after payment defaults rose sharply due to the financial turmoil, insurance companies are turning away many new clients due to the prevailing market conditions, they added.
Credit insurance is purchased by business entities to insure their accounts receivable from loss due to the insolvency of the debtors. Policyholders require a credit limit on each of their buyers for the sales to that buyer to be insured.
A week ago, state-owned Export Credit Guarantee Corporation (ECGC) imposed a credit limit of Rs 50 lakh if an exporter is supplying goods to a single US buyer, insurance sources said. Other insurance firms are either denying credit insurance cover or fixing credit limits on a case-by-case basis, depending on their risk assessment of the buyers.
"The credit insurance market is getting quite choppy. There is a great deal of demand and supply is rapidly drying up. There is a sea change in the risk appetite of insurers and we are struggling to get good terms for our clients" said Pavanjit Singh Dhingra, vice-president, Prudent Insurance Brokers.
The insurance companies have also lowered the maximum liability by 25-30 per cent that will accrue to them in case of payment defaults by the buyers.
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