Cargo Insurance Risk Management Options
When insuring their cargo, importers will need to decide what risk management option is ideal for their business.
When purchasing Marine Cargo Insurance, Importers must choose if they want to insure their goods shipment-by-shipment or use an annual policy. For an importer to choose the risk management option that is right for them, they must carefully evaluate how much they ship. However, most companies can financially and efficiently benefit from an annual policy.
Shipment-By-Shipment Cargo Insurance Coverage
Shipment-by-shipment cargo insurance policies only cover a single shipment at a time. For each shipment, importers must buy a different policy that may have a different rate each time they ship. Shipment-by-shipment cargo insurance is likely to be more expensive than other types of cargo insurance. However, those who ship infrequently may see savings when using the shipment-by-shipment risk management option.
This coverage is generally available through the Freight Forwarder shipping the goods. Customs brokers may offer this coverage as well. Freight Forwarders and brokers have an open policy that they can add shippers to for a single shipment. These insurance rates are higher than usual because a freight forwarder or broker purchases their insurance and then marks the price upon the importer’s invoice, which generally results in higher rates than an annual policy.
Importers that ship goods frequently and purchase shipment-by-shipment insurance are most likely overpaying. They are typically paying between $0.30 & $0.60 per $100.00 of cargo. This is because importers are buying into the Freight Forwarder or Custom broker’s policy rather than their own.
There are also specific exclusions on the policy when using shipment-by-shipment coverage. Most broker or freight forwarder policies have limited insurance terms rather than all-risk coverage. Their policy is not designed for your specific shipping insurance needs.
Those insuring their goods shipment-by-shipment are most likely not covered for the following:
- Acts of God (heavy weather, earthquake, lightning, etc.)
- Acts of war (strikes, riots, or civil commotions)
- Latent defects in the hull or machinery
- Criminal acts or negligence by the master or crew
- Unseaworthiness of the vessel
CIF Cargo Insurance Coverage
CIF coverage, also known as Cost, Insurance, and Freight, is a type of shipment-by-shipment coverage obtained through terms of sale. This means that the seller buys the policy rather than the importer. The seller is required to obtain insurance for the goods while they are in transit to the named port of destination. Under CIF terms, the policy must be for the buyer’s benefit, so it must name them.
This risk management option usually only requires the seller to purchase Cargo Clause C, which consists of the least coverage available. Once the goods arrive at the port of destination, the responsibility for the goods transfers over to the importer, and CIF coverage no longer applies.
One of the issues with buying on CIF terms is that the importer has to deal with an overseas insurance company when a cargo insurance claim occurs. Chances are the importer is not a valued client of that insurance company. This means importers will have a hard time getting that insurance company’s attention.
While it is convenient to have the seller of your goods handle purchasing insurance for those goods, purchasing Marine Cargo Insurance on CIF Terms could be hurting your business and costing you more. There are usually markups associated with buying goods on CIF terms, and you simply don’t know the specifics of your insurance policy.
Annual Cargo Insurance Coverage
Annual marine cargo insurance policies consist of a locked-in contract for coverage lasting one year. Sometimes these contracts can last for a more extended period. These contracts cover all shipments within that period that are within the policy’s terms and conditions.
Annual coverage is likely to be the most cost-effective risk management option for the majority of importers. Rather than securing one policy per shipment, importers can get an annual cargo insurance policy that automatically covers all their shipments within the year.
An annual open cargo policy automatically insures shipments on set terms, conditions, and rates without the need to contact an insurance broker or company each time an importer has a shipment. These policies generally have lower premiums and less paperwork, which makes the claims process more manageable.
Benefits of an annual policy with Trade Risk Guaranty include:
- Asset protection
- General Average guarantee
- Control over claims
- Local representation
- Automatic & continuous coverage
- No monthly reporting!
- Many deductible options
- Point of origin to final destination coverage
- Aggressive claims handling
- Premier Policy Enhancement Clauses
- Costs only occur once a year, unless adjustable
- Lower premiums
- Less Paperwork
- Comprehensive coverage