Ex-Im Bank's insurance programs are pointed in new directions

Business America, Feb, 1995 by Linda Formella

If the measure of good government is responsiveness to changing needs, than the export credit insurance program of the Export-Import Bank of the United States is a good example of the kind of government assistance that works in today's business environment. Since 1992 when Ex-Im Bank brought all of its insurance programs in-house, the Bank has been working steadily to reinvent its Insurance Division and provide the most state-of-the-art insurance programs to U.S. exporters. In fiscal 1994, exporters responded enthusiastically to the Bank's efforts, obtaining coverage for $4.2 billion in exports, a level that matches last year's phenomenal increase of 50 percent over the previous year.

Ex-Im Bank's export credit insurance program helps U.S. exporters develop and expand their overseas sales by protecting them against loss should a foreign buyer or other foreign debtor default for political or commercial reasons. Ex-Im Bank tailors its policies to the insurance needs of exporters and financial institutions. For example, insurance policies may apply to shipments to one buyer or to many buyers, insure comprehensive credit risks or political only risks, or cover medium-term (up to 360 days), as well as short-term (up to 180 days) sales. Two policies - the New-to-Export policy and the Umbrella Policy - are geared specifically to small businesses that are just beginning to export.

In fiscal 1994, Ex-Im Bank's insurance programs showed substantial increases in small business activity, exporter policies, and buyer underwriting applications. Insurance shipments to Asia increased dramatically, and the Bank opened for insurance coverage in several new markets. The Bank also introduced several program changes including a higher entry ceiling level for small business policies, a new medium-term policy, and a new broker program.

Small Business

Use of Ex-Im Bank's small business insurance programs increased dramatically in fiscal 1994, with the number of policyholders increasing 35 percent. Reported shipments under these policies increased 36 percent, from $86 million to $117 million.

However, numbers alone don't tell the small business success story. An example of how Ex-Im Bank's insurance programs support small business is the experience of ABCO Industries, Inc., a boiler manufacturer in Abilene, Tex., with approximately 130 employees. ABCO has been manufacturing boilers for 34 years, but the company did not begin exporting until the mid-1980s. In fiscal 1994, through the efforts of Ex-Im Bank's regional office in Houston and a registered Ex-Im Bank broker, ABCO obtained an Ex-Im Bank medium-term policy that enabled the company to offer competitive terms to a customer in Israel. In addition, when working capital was needed to manufacture the boilers, the company used Ex-Im Bank's Working Capital Guarantee program to gain access to commercial financing.

In fiscal 1994, Ex-Im Bank raised the entry level ceiling of its small business insurance programs (New-to-Export and Umbrella policies) from $2 million to $3 million to make these non-deductible policies more available to exporters and more attractive for retail promotion. The change expands eligibility to encourage more small businesses to venture into exporting and provides the incentive of larger commissions to encourage brokers to market the programs.

New Markets

In fiscal 1994, Ex-Im Bank insurance programs were used to cover shipments to several new markets - Thailand, Brazil, Turkmenistan, and Uzbekistan, Although Latin America remained the top market, insured shipments to Asia increased 30 percent. Significant volume of Ex-Im Bank insurance policies was recorded for the United Kingdom, Germany, and Canada, which illustrates the wide acceptance of Ex-Im Bank's multibuyer policies in the marketplace.

Growth and Policy Changes

Ex-Im Bank offers a wide range of policies to accommodate different export credit insurance needs. These policies provide exporters with regular coverage for short-term and medium-term export sales to a single buyer or multiple buyers. Use of Ex-Im Bank's short-term, multibuyer, and single buyer exporter policies expanded substantially in fiscal 1994, with insurance shipments increasing over 9 percent, from $1.65 billion to $1.8 billion. The number of short-term exporter policies increased 14 percent, and the trend is expected to continue.

In fiscal 1994, Ex-Im Bank processed 5.5 percent more buyer underwriting applications than in the previous fiscal year, and 72 percent of these applications were processed in four days or less (89 percent were processed in 10 days or less).

The Bank introduced a medium-term insurance policy featuring 100 percent cover. The policy is designed for smaller transactions of $10 million or less. The new policy seems to be gaining quick market acceptance, and the Bank anticipates hundreds of applications in fiscal 1995. Ex-Im Bank also introduced a new broker program that includes broker standards, a broker training seminar, and higher commission rates for multibuyer policies.