Export credit insurance is usually cheaper than you think. An average policy, insuring turnover of AUD$5m a year, starts from AUD$15,000 in annual premiums. That equates to just AUD$0.30 for every AUD$100 invoiced. However, some policies will cost less and some will cost more, with the final premium being dictated by the level of risk and the amount to be insured. No two policies will be exactly the same, as the perception of risk will vary according to individual customer, geographical, environmental and political situations, all of which can fluctuate and change over time.

Calculating the cost of export credit insurance

Calculating the cost of export credit insurance can be complex as so many variables are applicable. These usually include:

• Your customer’s trading behaviour, including the trading history they have with you and with other businesses – have they failed to pay invoices in the past?
• Sector stability – are supply chains secure, are technological developments causing disruption with new competitors or products?
• Customer location – is their environment risky, for example is there a high incidence of flooding, volcanic activity or earthquakes where they are located?
• Political risk – is there a high risk of political instability in your customer’s location, including war, coup, terrorism or even the threat of cripplingly high tariffs?
• Is the sale particularly complex, for example does it involve a long project that may cover several years or involved several buyers?

What equation do credit insurance firms use to calculate policy cost?

Most export credit insurance firms will calculate the cost of export insurance based on a percentage of turnover combined with the level of risk. At Atradius the cost of export credit insurance is typically 0.5% of turnover depending on the risk profile and the spread of risk. This means that smaller businesses trading with lower risk will pay less than businesses that require cover for bigger sales carrying higher risk. Each policy will typically cover a client’s entire client base and premiums are charged annually in advance.