Cargo insurance is the oldest type of insurance in existence, yet it’s often the least understood.
Whether you are transportation intermediary or a shipper, here are some cargo insurance buying tips from the unique perspective of an insurance insider.
Do insurance underwriters rely on methodology and science to determine pricing or do they just pull numbers out of their hat?
Actually, applying a rate to a risk is a combination of both.
Contrary to traditional lines of insurance, marine insurance does not rely on company published rate guides or state filed rates. Pricing is typically based on an insured’s loss experience, the relative risk, type of commodity and geography. But at its core, pricing is ultimately based on the insurance company’s level of comfort with you and the risk.
So, if you want better pricing, work with your insurance provider to help make the underwriter feel as comfortable as possible with the risk.
When it comes to negotiating cargo insurance, information about packing details, prior experience, routing details, and loading or trans-loading should be submitted in your request.
The more detail the better.
Without sufficient information, underwriters will express their discomfort by way of inflated pricing, deductibles, and restrictive insuring conditions.
For example, An intermediary apply for insurance, pricing on € 2,00 million of pharmaceutical equipment carried on flat-racks from USA to Greece, will yield a reluctant response.
The same intermediary describes the risk as “new pharmaceutical equipment, custom crated, and moisture protected by XYZ Professional Heavy Equipment Packers and supervised by manufacturer engineers to ensure product integrity” will yield a much more favorable response.
In addition to providing information to reassure the underwriter, shippers willing to absorb higher deductibles can typically yield much better pricing.
Included in the wide range of deductible options are deductibles expressed as a percentage of the value, flat deductibles per shipment, and per-piece or per-conveyance deductibles.
Protecting the supply chain
While a cargo policy is generally thought of as the answer to insure international transits, it can be expanded to provide coverage for your entire supply chain.
Complex supply chains involving consolidation, temporary warehousing, third party processing, and distribution centers are the norm, and a properly designed cargo policy should extend coverage all the way through to avoid gaps in coverage.
This is especially important with concealed damage claims where the loss may not be discovered until the goods are in the hands of your buyer.
One of the most overlooked areas of any insurance is subrogation capabilities of the insurer this is especially true with cargo insurance. Subrogation is the action the insurers protect your contingent interest in these exposures, but don’t assume that it’s automatically included.
Consider how many future shipments it may take to make up an uninsured cargo claim or if your company is prepared to suffer an uninsured cargo loss. Also consider that failure to purchase proper cargo insurance won’t be covered under Directors and Officers insurance if your shareholders decide to take action after an uninsured loss.
A thorough review of your supply chain exposures and a customized cargo insurance policy will greatly reduce the possibility of an uncovered loss.
Demand that your insurance provider perform an annual review and ongoing training with finance, sales, traffic, and risk management departments.
With cargo insurance at relatively low prices, there is no reason not to have the proper coverage in place.
Cover your risks
It’s important to remember that cargo insurance is one of the last unregulated lines of insurance, and the strength of the policy you purchase is often based on you and your insurance provider’s ability to identify all the potential hazards within the supply chain. Then you need to work together to customize coverage to properly insure the real risks.
Do not assume that all cargo insurance is the same or that there’s some standard wording. For example, most policies limit coverage at the port to a maximum of 25 days and inland at a maximum of 60 days. If your goods sit at the port longer than 60 days, it’s important to ensure coverage is extended to suit the exposure.
Consider the current capacity issues, rolled shipments, missed sailings, and other delays that may leave your cargo sitting at the port or elsewhere without coverage. Even if you have coverage for the extra time the cargo may sit, the policy may still not be adequate to accommodate the high values that may have accumulated at one place so policy limits must be reviewed as well.
Finally, bear in mind that these are just a few examples of hundreds of scenarios that may alter an insured’s needs beyond a standard cargo policy. It’s up to shippers to do their homework.
