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Cargo Insurance: Key Aspects Overview
Cargo insurance policy is a complex product with a number of specific features which should be considered by those who are counting on being indemnified in case of an insured event.
Who is responsible for cargo? Is it supplier or buyer?
In order to define this correctly, remember to follow the simple rule – the one to suffer losses in case of the cargo damage, is the one to insure it. This means that a carrier does not necessarily has to conclude an insurance agreement if he is responsible only for the delivery of cargo which belongs to the buyer, to the certain point of destination. Terms of shipment normally define who bears the biggest risks. In real life a carrier often insures the cargo if he bears full responsibility for the safety of cargo until it is delivered to the final buyer.
If a client picks up the goods at the supplier’s warehouse, it’s reasonable for him to insure this shipment himself.
INCOTERMS should be consulted to define at what point the transfer of both title and risk takes place in the course of international shipment.
How often do you plan to ship cargo?
The answer to this question defines which type of policy suits you the most. It can be either a one-time policy concluded to insure the single shipment or a master agreement covering all shipments carried out within the specific period of time (normally – a year). In the first case separate agreement should be signed for each and every shipment. As to the master agreement, its principle advantage comes down to the lower cost of insurance. Normally reconciliation reports containing the list of all shipments carried out during the report period are signed on a monthly or a quarterly basis.
What choice of cargo clauses do you have?
There are tree types of cargo clauses accepted worldwide. They are ICC A, ICC B and ICC C – so called Institute of London Underwriters’ clauses A, B and C which define the extent of insurer’s liability.
As to the ICC B and ICC C clauses, they cover the named perils only. It means that the loss is qualified as an insured event only if it falls within one of the perils, specified in the insurance policy, unless, of course, it is an exception under the agreement. The main difference between these two clauses comes down to the fact that ICC B covers the risks included in the ICC C coverage as well as acts of God damage and particular average loss.
It’s worth pointing out that ICC B and ICC C insurance policies do not cover theft, robbery etc. Therefore their use is reasonable only for the sea or rail shipping and is not used for road haulage.
ICC A provides the most extensive insurance coverage as the agreement is concluded on “all risks” basis. This means that any loss is covered by the agreement unless it is specifically excluded by the coverage under certain policy clauses. ICC A policies are widely used for any kind of shipments.
If your cargo requires specific thermal regime make sure to include the refrigerator breakdown into the coverage. This is crucial for shipments of frozen goods, pharmaceuticals or certain types of raw materials
How to calculate the sum insured?
Normally sum insured equals the value of cargo. However, there are some exceptions to this rule.
If a supplier is liable to pay for the shipment as well as custom duties, storage and freight, sum insured should be set at the level of 110-115 % of the cargo value. This approach is relevant for international shipments.
Cargo value is usually defined by the sale price. If the freight forwarder and the freighter are the one person the cargo value equals to its actual value and is to be confirmed by the invoices and bills of lading.
Last, but not the least, make sure to find out whether or not the hot bed territories, military conflict zones or territories under UN or USA sanctions are included in the transportation route. If that is the case, you risk being denied indemnity.