Giving the Green Light to Export Insurance

According to preliminary survey results carried out by the Ministry of Industry and Trade, a few of 200 surveyed exporters used payment risk procedure programmes. Classifying export risks, 68 percent are commercial risks in which exchange rate risks make up a substantial weight.

 

Vietnam has some 35,000 exporters but most of them have never experienced export credit insurance. They mainly ask foreign importers to open letters of credit or insure exported freights. The survey results showed that 95 percent of exporting companies wanted to use export credit insurance and 78 percent of them wanted to have commercial risk insurance, including exchange rate and price risks.

Moreover, there are many barriers against the deployment of this type of insurance. According to the Insurance Management and Supervision Department, the export insurance market depends almost entirely on foreign re-insurers which carry out from exploitation, risk assessment to insurance appraisal and others and transfer most of services ordered abroad. Hence, this form of insurance is limitedly developing in the country.

 

Furthermore, as exporting activities are related to global commercial activities, this requires companies to have good IT system, diverse risk data for different countries, industry risks, large world-wide transaction networks and profoundly experienced human resources.

 

To meet the demand of companies and surmounting above barriers, on November 5, 2010, the Prime Minister issued the Decision 2011/QD-TTg to organise a pilot deployment of export credit insurance in the 2011 -2013 period. According to the decision, export credit insurance is a short-term export credit insurance for commercial risks and political risks. Export credit insurance helps prevent and minimize risks in export credit to raise financial safety and promote exports.

 

Many exporters will benefit from the Government-initiated credit insurance as it covers up to 21 industries, including seafood, rice, coffee, vegetable, rubber, pepper, cashew, tea, cassava, apparel - textile, footwear, electronics and computer components, ceramics, glass, handmade bamboo and rattan products and mattresses, wooden product, plastic product, etc. The export turnover is insured 3 percent.

The Ministry of Industry and Trade said it would supply information about countries, industries, importers and market risks in major markets and instruct residential Chambers of Commerce to cooperate with insurance companies to carry out the pilot programme, take back debts and tackle related issues.

Currently, the credit insurance is highly valued by companies for simple procedures and short time to complete. Besides, many insurance companies, banks and business associations have implemented this type of insurance.

 

Realising market opportunities, some nonlife insurers are cooperating with foreign partners to provide export credit insurance. Typical companies include Baoviet Holdings, BIDV Insurance Company, PetroVietnam Insurance Joint Stock Corporation (PVI), Bao Minh Insurance Corporation and QBE Insurance Company Limited.

 

Not only insurers, banks also are attracted by export credit insurance and they have begun to launch this product. Sacombank has provided factoring services for exporters in markets where the Ho Chi Minh City-based lender has branches (firstly Laos and Cambodia). Sacombank purchase accounts receivable of exporters in Vietnam and finance importers to settle payments at maturity.

 

Many banks forecast that export credit insurance will bring greater efficiency and match international presence expansion strategies. Earlier, four Vietnamese banks were chosen by the Commodity Credit Corporation (CCC) under US Department of Agriculture to draw up the L/C for farm produce import from the US under the Export Credit Guarantee Programme, or GSM-102. The programme covers credit terms of up to 12 months with the total limit of US$20 million.