Page 23 - Insurance Times November 2019

will no doubt have a provision preventing an insured inves- party, etc.). ECGC does the other country's evaluation on
tor from taking any step such as reaching a negotiated reso- the basis of weighted averages of scores on various param-
lution with the country, which might affect its treaty rights. eters (like economic risk, political risk, their experience on
It is incumbent on the ministry of commerce to publicize a that country, economic & political relations with India, ex-
public document stating all the treaty advantages for Indi- perience with other credit insurers and Forecast). When
ans and where a political insurance cover is advisable. Oth- evaluating its own country experience, it now considers all
erwise there will be high incidence of mis-selling or under- ECGC local exposure, its claim-premium ratio, and the in-
selling of such policies to unsuspecting Indians. cidence of commercial and political claims. It has now also
begun to examine other Berne Union members' experience
India's Political Risk Insurance Scenario: with the country, particularly the number / percentage of
transfer delays. Extra weight is given to 'Focus Programme'
ECGC is supporting the globalization efforts of Indian ex-
porters with all the associated three broad aspects of In- countries with which the Indian Government wants to bol-
ternational Trade viz, Exports: short term, medium and long ster political ties'.
term including Goods, Services and Construction / Turnkey;
Credit-trade credit and bank credit including Supplier credit, ECGC graduated a number of countries into lower-risk cat-
Buyer Credit and Line of Credit; Risk-pre shipment and post egories and separated some island groups (including the
French Pacific Islands and the French West Isles) into a
shipment including assessment, monitoring and managing/
mitigating. The risks broadly covered by ECGC are political collection of self-standing countries, each with its own risk
risk and commercial risk. ECGC is associated with various rating. However, ECGC is consistently & continuously exam-
ining how it might quantify client and project risk, over and
risks in export trade with reference to advance payment,
above country risk. Currently, ECGC relies completely on
confirmed letters of credit, letters of credit, various docu-
ments against payment, documents against acceptance and banks to assess these factors, by only covering those invest-
straight delivery. ments being financed by a recognized bank.
Developing robust client and project risk assessment pa-
ECGC uses the following 7 weighted parameters
rameters will also be a pre-requisite to bringing new invest-
to classify risks in various countries spread ment and political risk insurance products to market. At the
world-wide: same time, ECGC will have to start incorporating environ-
ment and corruption risk into its assessment parameters,
Factor Weight*
as is now common practice internationally. ECGC has only
Economic risk rating 35 had to pay out one claim in its entire history - of US$0.3
Political risk rating 20 million to Usha Martin, a steel wire rope manufacturing
Experience of ECGC 15 company, for an investment in the former Yugoslavia. While
ECGC obtains some re-insurance from India's only re-in-
Economic and political relations with India 10
surer- the Government run GIC Re, it is finding it increas-
Experience of other credit insurers 10
ingly difficult to raise additional medium and long-term re-
Forecast (new) 10 insurance from the international market.
TOTAL 100

*Scores are then totaled and countries divided into 4 risk
categories: A (safest), B (moderately safe), C (risky) and D
(riskiest).

ECGC has revised this model several times since it was
developed in 1995 to respond to evolving investor needs,
host country realities and ECGC capabilities. In calculating
'economic risk', ECGC included exchange rate fluctuations,
and GDP, inflation, and export growth rates. In calculating
'political risk', it has considered the type of government
(that is, democracy or dictatorship, coalition versus single

The Insurance Times, November 2019 23