OTTAWA (Reuters) - A little-known insurance product is gaining traction in Canada as exporters seek to guard against losses and bankruptcies of their suppliers and customers due to U.S. President Donald Trump's tariffs, insurers said.

Trade credit insurance for insolvencies of foreign customers covers 90% of all lost payments and is widely used in Europe. Yet Canadian exporters insure less than 1% of all overseas payments that account for 40% of their revenue, according to Receivables Insurance Association of Canada, the body that represents trade credit insurers.

Trade credit insurance has never been popular for business between the U.S. and Canada, which ships over 75% of its exports south of its border, because risks have been minimal under free trade agreements for three decades, insurers and brokers said.

Demand for coverage has risen during financial crises, as in 2008-09 and the pandemic.

While inquiries have increased recently, customers are hesitant due to the uncertainty of Trump's on-again, off-again tariffs, said Agatha Alstrom, vice president of Insurance and Working Capital Solutions at Export Development Canada (EDC), a federal agency.

"Tariffs are changing significantly from day to day," she said, noting that Trump's erratic decisions make it tough for exporters to gauge their impact on businesses.

EDC is Canada's biggest trade credit insurance provider, which is deploying C$5 billion under a government program for businesses hit by tariffs.

Only about 5%, or 7,000 to 10,000, of export businesses have credit insurance, but inquiries about coverage have jumped 10% since January, said David Dienesch, CEO of Allianz Trade in Canada, a trade credit subsidiary of Germany's Allianz.

"Bankruptcies will rise in Canada and certainly in the United States," he said. "If I buy credit insurance, those bankruptcies are not going to impact me as much."

Trump threatened to impose tariffs during his reelection campaign and followed through after his inauguration, slapping high duties on Canadian steel, aluminum and automotive imports.

The tariffs on Canada have already started to squeeze margins, dry up order books and trigger discussions on how to deal with the rising costs, the executives said.

Counter-tariffs by Canada are worsening the impact, they said.

"We are fielding calls on a daily basis. ... People are afraid," said Michelle Davy, chairwoman of the board of the Receivables Insurance Association of Canada.

As president of CreditAssur Inc, a credit insurance broker, Davy said she has seen signs of payment delays, and indications of rising insolvencies.

In one recent week, Davy said, one of her policholders had three of its clients declare insolvency, while some are struggling with cash flow disruptions.

Interest in credit insurance grew during the COVID-19 pandemic as companies realized they were not covered for business interruption, said Danish Yusuf, founder of business insurance provider Zensurance.

Zensurance does not provide credit insurance, so Yusuf directs inquiries to providers of products that can shield businesses from a U.S. partner in trouble, he said.

The government has laid out a raft of programs to educate businesses about trade credit insurance, said Alstrom of EDC.

Inquiries will convert into actual coverage as stockpiles companies are building to hedge themselves from tariffs dwindle and import duties start hitting supply chains, she noted.

(This story has been corrected to say EDC is 'deploying,' not 'disbursing,' in paragraph 7)