Special Risks of Overseas Commerce

Exporters and importers face special risks that don’t necessarily threaten companies doing only domestic commerce. Although you can insure most of these risks, it pays to think carefully just how you do so.

The risks include:

* Theft and pilferage;

* Loss in transit;

* Credit risk;

* Product liability;

* Patent infringement; and

* Expropriation and kidnap.

None of these threats, of course, dissuades American companies from doing business overseas. Instead, their owners look for advice from insurance brokers who specialize in this kind of coverage.

Exporters and importers alike face the threat of theft and pilferage; the greater the number of people who handle your goods on their way to or from the United States, the greater the likelihood that someone will make off with them. For the most part, insurance is readily available at rates reflecting both the value of the goods in transit and the relative risk of the routes they take.

Insurers avoid covering theft and pilferage in some countries subject to unrest--for example, Algeria and some sub-Saharan countries in Africa. They do insure against theft around the Pacific Rim, despite some fear that the current financial troubles in the region will worsen lawlessness in such places as Indonesia. For that matter, not every port in Mexico is safe, and exporters sending goods to Russia and certain other countries in Eastern Europe brave a well-organized criminal element.

Jeff Kleid, of the C.M. Meiers Co., a Sherman Oaks insurance brokerage, says it’s crucial to insure your goods at every step. Careless exporters may find themselves uncovered while, for example, a shipment of goods sits dockside awaiting transfer to the importer’s warehouse. Worse, importers may learn that their supplier insures the goods only until they reach dockside overseas awaiting shipment here.

“You want warehouse-to-warehouse cover,” Kleid says. “That means you want coverage in force from the time it leaves your supplier’s warehouse until it gets to your own in this country.”

For importers, this means negotiating the coverage with your supplier--simple if you know your supplier, sometimes tricky if you don’t. For exporters, it means making sure that your customer overseas knows just how far your own coverage extends.

For importers and exporters alike, you want to make sure that your goods don’t go uninsured at any point in the pipeline, Kleid says.

This includes insurance against disaster at sea--a rare loss, to be sure, but severe if it does happen. Insurance covering goods at sea is readily available at good rates reflecting both the value of the goods and the rarity of sea-borne disaster.

Also readily available, though little known among many business owners, is credit insurance, that protects you against the threat that a big customer overseas may go belly-up, poking a hole in your accounts receivable. Credit insurance, also known as accounts receivable insurance, was analyzed in this space last September. (Readers may request a copy of that column from the writer at the telephone number below.)

Once their goods reach the U.S., importers face the threat that a product will cause personal injury to customers here or infringe a competitor’s patent or trademark. Exporters face the same threat when doing business in countries with product liability law similar to that in this country--for example, many countries in Europe.

Readily available, product liability insurance comes in two forms, domestic and worldwide, according to Harris Pinsky, a partner in Sentinel Business Insurance Services of Tarzana. The former covers you only for goods made in the United States and only for litigation brought in domestic courts. Worldwide coverage protects you against litigation brought in U.S. courts involving goods made overseas. You can buy expanded worldwide coverage protecting you against lawsuits brought in any court, U.S. or foreign.

U.S. courts hold importers, wholesalers, distributors and retailers liable for injuries suffered by people who buy their products no matter what the products’ countries of origin, so the coverage is crucial, Pinsky says.

“Let’s say you import a product from Japan and your manufacturer’s Japanese liability insurance doesn’t cover people who buy the product here. If you don’t have liability insurance yourself, you don’t have the cover at all,” he says.

It’s important, Pinsky adds, to match your coverage to your need--and to keep it current as your foreign business changes. Premiums for product liability insurance for domestic risks start at $5,000 annually for $1 million in coverage. Worldwide coverage starts at $1,500 to $2,500 for $1 million in coverage.

Pinsky considers insurance against patent and trademark infringement equally important. As the name implies, the insurance covers you against claims that something you import violates a U.S. patent or trademark.

Many retailers demand that importers show proof that they carry patent and trademark infringement insurance, so buying it is really a necessity, Pinsky says.

Patent and trademark infringement insurance starts at $7,500 for $1 million in coverage.

Last but not least, U.S. businesses face the threat of expropriation in some parts of the world and, in some places, the risk of kidnap. Insurance is available though costly, depending on the risk. Kidnap insurance for some parts of the world is not available.

“There is a wide variety of goods exported and imported here--biomedical agents and supplies, toys, electronics, cameras, clothing, cars--really the gamut of things available to consumers in America as a whole,” Pinsky says.

*

Freelance writer Juan Hovey can be reached at (805) 492-7909 or by e-mail at jhovey@gte.net