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Considering the recent developments in logistics sphere which have been leading to market consolidation a lot of operators are looking into possible ways of transferring some of their risks to the insurance companies. However it is essential that the insurance product be chosen accurately with regard to the extent of coverage, as well as with regard to justified cost.
There are few factors to be considered in order to keep this balance. This article is devoted to comparative analysis of two principal insurance products relevant to logistics.
1. Who can act as the Insured?
Anyone able to prove valuable interest in the shipment can be the Insured under an agreement. Normally that would be buyer/supplier in accordance with terms of the shipment or carrier/freight forwarder.
As to the liability insurance, the Insured must be an entity or an individual legally liable for the safe-keeping of the shipment.
2. What can be qualified as an insured event?
If we are talking about cargo insurance, the damage to it is a sufficient ground for the Insured to claim a loss. Naturally enough, the extent of the coverage is defined when insurance agreement is signed. It affects the price accordingly.
3. How to define the sum insured accurately?
When insuring cargo the sum insured is usually equal to the real value of the annual cargo turn-over or each particular shipment given it is insured by separate agreement. It’s a common practice to increase the sum insured by the amount of indirect costs so that they also be covered by insurance in case of the cargo damage or loss. In these cases the sum insured usually is set at the level of 110-120 % of the real value of shipments insured.
As to the freight forwarder’s liability insurance, the limit of liability does not correlate directly with the actual cargo turn-over. It usually depends on the maximum value of one shipment. Frequently enough in order to reduce the insurance cost the additional limits are imposed within the total limit of liability under the insurance policy. This means that the indemnity for one insured event is limited by a certain sum which is smaller than the annual limit of liability.
4. Which extent of coverage is sufficient?
Undoubtedly, cargo insurance provides much broader coverage than the freight forwarders’ insurance. Traffic accidents in which the driver of an Insured is not at fault, or acts of God are only some of the perils which are generally excluded from the coverage under freight forwarders’ liability insurance but are covered under cargo insurance policy.
However these two insurance products also have something in common. For instance, the coverage under both of them can be extended for loading/unloading operations or interim storage which is godsend if we are talking about combined shipments.
Finally, it’s recommended that the choice of the insurance product be defined by the optimal balance between the significance of the risks an Insured would prefer to transfer to insurance company and the cost of such insurance. It’s no use paying extra for the insurance coverage you do not actually need.