Not all risks in export transactions are the same
A common source of confusion in export insurance is the difference between political risk and commercial risk. These categories determine what ECIC can insure, how policies are structured, and how claims are assessed.
Clarity on these distinctions is essential for exporters and lenders structuring insured export transactions and managing expectations throughout the life of a contract.
Political risk explained
Political risk relates to actions or events in a foreign country that prevent payment or performance due to government or state action.
Examples include:
- Expropriation or nationalisation
- Discriminatory changes in law
- Currency transfer restrictions
- War or civil unrest
- Breach of contract by a sovereign or state-owned entity
These risks are typically outside the control of exporters and buyers.
Commercial risk explained
Commercial risk relates to the buyer’s financial position or behaviour.
Examples include:
- Insolvency or liquidation
- Protracted non-payment
- Failure to honour contractual obligations
Commercial risk is assessed through credit analysis of the buyer.
What ECIC does not cover
ECIC insurance does not cover:
- Poor business performance
- Management failures
- Market demand fluctuations
- Pricing errors or cost overruns
Insurance is not a substitute for sound commercial judgment.
Why the distinction matters
Understanding risk categories helps exporters and lenders:
- Structure transactions appropriately
- Set realistic expectations
- Comply with policy conditions
- Avoid disputes at claims stage
Clear risk understanding improves outcomes for all parties.
What this means for exporters and lenders
ECIC insurance is a targeted risk management tool. Knowing what is covered, and what is not, is essential to using it effectively.
