Cargo insurance is one component of the supply chain that is often misunderstood. Many companies rely on coverage that is provided by the supplier or carrier and naively assume they are adequately protected. While there is nothing inherently wrong with this, understanding the terms and conditions of your policy is paramount.
Please consider the following facets of cargo insurance when choosing which policy is right for you:
● Cargo Insurance from the Supplier – Insurance from the supplier is often the most economical policy available. However, the benefits generally cover the best interests of the supplier. Since the minimum amount of coverage is applied, it leaves the buyer at greater risk than with other types of insurance.
● Carrier Insurance – The liability is very limited when carrier insurance is purchased. If cargo is damaged, it must be proven that negligence on the part of the carrier occurred. In the event of a claim, an adjuster will be assigned by the steamship line. Even if damage is discovered, the amount of compensation to the insured will be minimal. Some carriers now offer “protection plans”. These are not insurance plans, but rather a set amount of money provided to the beneficiary if damage occurs. Even though the monetary distribution is higher than carrier liability, it is still not near the coverage cargo insurance provides.
● Claims – Should there be a claim, supplier cargo insurance will be investigated and mitigated using the laws of the supplier’s country. In addition, an adjuster will be appointed by the foreign insurer. The same applies with carrier insurance, leaving the consignee with no local advocate.
A strong cargo insurance policy is one that will provide peace of mind to the insured which only comes with maximized coverage at a competitive rate. The value of analyzing your policy is imperative to ensuring an adequate level of coverage across the whole of your supply chain. Ideally the vast majority of cargo should be covered by all risk insurance. “All risk” insurance covers everything the policy does not explicitly state as an exemption. The protection should be warehouse to warehouse – meaning the product is protected from the time it leaves the supplier to the time it arrives at the consignee’s location. In the unfortunate event of a claim, as the policy holder your insurance representative should work as your personal advocate, saving you time and money.
In addition, verifying that general average protection is included in your policy is vital to avoiding an extremely costly bill from a carrier. For those unaware, “general average” is a principle of maritime law whereby all stakeholders in an ocean voyage proportionally share any losses resulting from a voluntary sacrifice of cargo, or even parts of the ship, to “save the voyage” in an emergency. An example is where containers are thrown overboard to right the ship in a storm at sea. A general average claim is usually extremely expensive and far above the value of your cargo. When general average is declared, the cargo owner is required to post a cash deposit prior to the release of the goods if there is no policy in place to cover it. For those with their own policies your insurance company should pay this expense and ideally process the claim utilizing a certified adjustor using U.S. laws.
It is very possible force majeure may be declared by the steamship line or freight forwarder given the recent trend of the global shipping community. While force majeure may not be specifically named in the policy, additional freight charges for the purpose of completing delivery, as well as other potential associated costs, may be paid by cargo insurers. Your cargo insurance policy generally has terms and conditions to cover costs relating to minimizing loss or damage and ensuring cargo arrives safely to its intended destination.
As previously mentioned, there are strict limitations in place for supplier cargo insurance and carrier liability. If, after reviewing your current cargo insurance policy or one provided by the supplier, you identify gaps in coverage, TLR would be pleased to offer suggestions to ensure adequate levels of coverage based on your international business footprint. For reference, the policy offered by TLR provides the cost for cargo replacement, additional shipping, claims and related charges, general average protection, as well as an advocate to work on your behalf utilizing Lloyd’s of London adjustors using U.S. laws.
Cargo insurance is a necessity for transporting goods. As it can be difficult to understand the types of products available, please feel free to contact TLR at BD@shiptlr.com with any questions relating to cargo insurance.