All you need to know about Cargo Insurance and why you need it

10:26pm 13th October 2020





Marine insurance is the oldest form of insurance in the world with its roots going back to the 9th century BC..

This was the start of what has developed into what we today know as general average..

The first actual marine policy goes back to 1347 in Genova..

When it comes to the placing of any insurance it is necessary to have an insurable interest in the cargo..

It is not necessary to have the insurable interest when placing the insurance plus it is possible to place the insurance after the risk has started provided there is no known loss at the time of placing the insurance..

Why do I need Cargo Insurance..??

Well, short answer – ANYTHING can go wrong with your shipment enroute to its destination – maritime disasters like containers falling overboard, ships breaking up, ships running aground, containers and ships catching fire and many other cases..

If your cargo is not insured, you are not going to be compensated for the same and you could lose your business and livelihood. So think again..

There are different types of Cargo Insurance and types of policies available to cover your cargo depending on your requirements..

Here are some of the points that you need to consider before taking on Cargo Insurance..

1) Know the cargo

It is imperative to know the properties of the cargo to be insured including the manner in which it is to be packed.  Ask “what can go wrong with this cargo?”

Packing is vital as it is the packing which protects the cargo during the voyage.  Is the packaging the normal packaging for that cargo for the anticipated voyage? Is the packaging sufficient to avoid cargo damage?

Ensure that the packages are marked to enable it to be identified.  This is very important for cargo being sent via airfreight or groupage/LCL cargo.  If the cargo is a Branded item, do not have the brand name on the packages as that will just be an invitation for theft.

2) Know the voyage

This involves more than just to know from which port to which port the cargo is to be moved.  What climate conditions can be expected to have an influence on the condition of the cargo?  Are there any political situations which can affect the safe delivery and/or payment for the cargo?  Does the voyage entail sailing in close proximity to any piracy hotspots?

3) Cargo clauses

When it comes to the actual insurance of the cargo, there are for general cargo three different levels of insurance which can be chosen. The clauses are published by the Lloyd’s Market Association (LMA) and International Underwriting Association of London (IUA).

There are also clauses specific for various trades, for example frozen meat, frozen produce, timber, coal, oil to mention a few. Airfreight has its own clauses, the Institute Cargo Clauses Air (excluding sendings by post).

The main clauses for all other modes of transport are the A, B and C clauses.  We will look at them in reverse order.

3.1 C Clauses – Risks covered

1. loss of or damage to the subject-matter insured reasonably attributable to
2. fire or explosion
3. vessel or craft being stranded grounded sunk or capsized
4. overturning or derailment of land conveyance
5. collision or contact of vessel craft or conveyance with any external object other than water
6. discharge of cargo at a port of distress
7. loss of or damage to the subject-matter insured caused by
8. general average sacrifice
9. jettison

3.2 B Clauses – Risks covered

All the above plus:

1. loss of or damage to the subject-matter insured caused by
2. general average sacrifice
3. jettison or washing overboard
4. entry of sea lake or river water into vessel craft hold conveyance container or place of storage
5. total loss of any package lost overboard or dropped whilst loading on to, or unloading from, vessel or craft.

3.3 A Clauses – Risks covered

All risks are covered.

Please do remember that “All risks” are not “All Risks” in that there has to have been a happening.  Something has to have happened which is NOT EXPECTED.

All the clauses covers general average plus “Both to Blame” collisions.

They also have exclusions which are clearly spelt out in clauses 4, 5, 6 and 7 in the clauses.

Only the A Clauses covers piracy.

4) Types of policies

When insurance is to be considered, they are two basic types of cargo policies, a facultative (once off policy) and an open policy, always open until cancelled.  It is only a facultative policy which is considered to be a valued policy.

All others have what is known as a basis of valuation which sets out how the cargo is to be valued in order to calculate the premium plus how to calculate the value of a loss against a policy.  This value can be “delivered at final destination plus a percentage”.

Remember that a policy taken out by a seller under Incoterms® 2020 rules CIF or CIP covers the buyer’s risk and not the seller’s risk.

The Incoterms® 2020 rules state that the policy shall be valued at a minimum of CIF value plus 10% under C Clauses.  Under CIP the value shall be the contract value plus 10% under A Clauses.  The buyer can request additional cover, for example war and strikes cover.

Although the seller takes out the insurance, the seller will include the premium in the selling price.  If the clauses mentioned are not in use by the insurer in the country of the seller, the equivalent clauses must be used.  The insurance is to be in the currency of the sales contract plus the buyer must be able to claim directly on the insurers.

Taking into consideration that the whole idea of insurance is to put the insured back into a position had the loss not occurred, this 10% will not cover duties, costs of customs clearing and delivery by any means of transport to the place of final receipt of the cargo, it is permissible to have a higher percentage mark-up.

Ensure that the policy covers the complete voyage to ensure that should there be any claim, there is no argument from the insurer  as to where the loss occurred and thus stating that the loss did not occur during the currency of the policy.

The Incoterms® rules also stipulates that the Institute Cargo Clauses 2009 version be used, or the equivalent.

Besides having a higher percentage mark-up, it is also permissible for the buyer to request better cover than that provided under C Clauses.

Do not forget that war and strikes, riots and civil commotions are excluded in terms of the above clauses but can be brought in by taking out cover for those risks.

Below is a form which gives some ideas as to what questions to ask when placing cargo insurance.

Finally, remember that should you appoint an insurance broker, always make use of one who knows your product, knowledgeable in marine insurance plus knowledgeable in current affairs including geography which includes best routing of your cargo.

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