Vol. 421 No. 29,545
Tuesday September 1, 1999
The Journal of Commerce
A Global Commerce Special Report By Richard Barovick
EXPORT CREDIT INSURANCE
Most exporters use brokers to guide them through maze
Third parties provide wider range of options
When Roy DeMillio, president of
Buena Vista Corp., a New York
textiles exporter, decided to use
export credit insurance, he figured
that working with a broker would
be a definite advantage. And he
hasnt been disappointed.
DeMillio, who has worked for
many years with Paul Garrigue of
Garrigue Trade Credit, a speciality
broker in Chappaqua, N.Y., finds
the broker is a buffer whos
closer to the underwriter than an
exporter can ever be.
Garrigue is in touch with the
insurers all the time, and knows
many other policy holders and a lot
of other export sectors. So, hes
got a lot of judgement, DeMillio
said.
DeMillio is not alone: most U.S.
exporters rely on brokers, not only
to place their business, but to guide
them through the technicalities of
the policies, and help them submit
claims when thats needed.
Brokers arrange about 85% of all
export credit insurance policies
offered by the U.S. Export-Import
Bank, whose short-term credit
program is used mostly by smaller
and midsized exporters. The rest
are marketed by the banks six
regional offices.
relations with the specialty brokers
that have done most of the export
business.
At private insurers that specialize
in export credit coverage, 100% of
the business is brokered. That
goes for the Foreign Credit
Insurance Association and
American International Group in
New York, and Trade Underwriters
Agency in Jericho, N.Y.
So then, what are some of the key
elements that smaller and midsized
exporters should consider to make
effective use of credit insurance
brokers?
In fact, John Hanson, president of
FCIA, is pretty blunt about it.
An exporter would be foolish not
to use a broker. The broker
delivers the whole market, he
explains. He isnt just an agent
for one company and its products.
Even the domestic credit insurers
that are newcomers to the export
side of the business have begun to
rely increasingly on specialty
brokers to link them with
exporters. Neil Leary, president of
Maryland Netherlands credit
Insurance Co. In Baltimore, said
his company has a multichannel
approach to marketing.
Earlier, it relied mostly on its own
in-house regional sales offices, but
it recently began to develop
First of all, finding an appropriate
broker is a challenge. Two dozen
specialty firms do 99% of the
business. A few garden-variety
property and casualty brokers also
do a little, but most face quite a
learning curve in dealing with a
product that is still a tiny part of
the commercial insurance business.
The specialty brokers can usually
be found through local offices of
the U.S. Department of Commerce
and the Small Business
Administration, or through state
and local government trade offices,
or through local foreign trade
clubs.
Second, keeping the broker
informed is critical, especially for
smaller or less-experienced
exporters. Don Keesee, head of
Keesee & Associates, a specialty
broker in Birmingham, Mich., said
2 Journal Of Commerce
Tuesday September 1, 1999
he doesnt fill out his clients.
paperwork, preferring that the
exporter be more involved But, he
often has clients pay their
premiums through him. That
way I can check their math, and be
sure that the country involved is
covered by the policy. And,
sometimes, be sure that the
premium has in fact been paid.
Most insurance premiums are paid
on time, within 30 days of
shipment, but failure to pay a
premium is perhaps the most
common reason why an
underwriter wont pay a claim.
Some smaller exporters use an ExIm Bank umbrella policy, which
provides extra help, including
paying premiums and reporting
shipments to the underwriter.
Export Insurance Services in
Atlanta, a specialty broker, delivers
most of the umbrella policy
business, and has developed
customized computer software for
that purpose.
Arles Tamayo, owner of Arles
International in Miami, an exporter
of automotive components and
spare parts to Latin America and
the Middle East, uses Export
Insurance Services umbrella
program, and acknowledges, I
dont know that Id do without
it.
With insurance, we have
been able to get our bank to
cover receivables of 180
days, whereas earlier we
couldnt obtain more than 90
days. Our broker [NaviTrade]
was able to find creative
solutions, not just
insurance.
Mark Richter
Chief financial officer
Windsor Industries
Third, structuring the right policy
for an exporters business,
especially where clients are
located in more difficult
countries, has to be one of the
main contributions the brokers
can make. Each insurance
company has its own appetite
for risk, as its called in the
business, and that can shift
constantly. Brokers know all of
the underwriters, and can help
their clients find the best policy
for their sales patterns.
Over the past two years this has
sometimes been a severe
challenge for covering sales to
financially strapped Asian
markets.
Brent Hoots, head of NaviTrade
Structured Finance in Niwot,
Colo., was able to help a miningequipment manufacturer client
arrange cover for sales to
Indonesia, then a risky
proposition. It did so by placing a
policy with an insurer that was
willing to cover a flow of
transactions to multiple markets,
including Indonesia. NaviTrade
had to identify an underwriter
willing to do so, and to structure
the policy so that a balance
between risky and safe markets
was created.
This shopping around is a major
benefit for exporters that specialty
brokers can provide.
Finally, credit insurance is often
viewed as a part of a larger
financing strategy. Many
exporters use it to obtain bank
financing, by assigning the
policy to a lender, The latter can
discount the foreign receivables,
thus helping the exporters cash
flow, by relying on the insurance
to cover repayment risks.
In some cases, specialty brokers
will help find and work with
banks that are willing to accept
the policy as a source of
creditworthiness. But in some
cases brokers go even beyond
insurance to put together more
complicated financing packages.
Mark Richter, chief financial
officer at Windsor Industries in
Englewood, Colo., a
manufacturer of commercial and
industrial floor cleaning
equipment, has worked closely
with NaviTrade Structured
Finance for the past three years.
With insurance, we have been
able to get our bank to cover
receivables of 180 days, whereas
earlier we couldnt obtain more
than 90 days, he said.
Our broker [NaviTrade] was
able to find creative solutions, not
just insurance, Richter said. In
some cases that meant setting up
leasing subsidiaries in Europe to
ease the financing burden of the
commercial cleaning contractors
that buy its equipment.
Putting insurance and
financing packages together has
made all the difference, he
added.
3 Journal Of Commerce
Reprinted with permission from the
Journal of Commerce.
Tuesday September 1, 1999