When do I need cargo insurance?

Is it worth adding additional cargo insurance to your expenses or can you get by with basic coverage? What can happen to your goods during the journey and when will the carrier not pay you a cent to cover the losses? Let’s find out together in this article.

Why insure cargo?

Most entrepreneurs believe that insurance = unnecessary expenses. But this mindset persists only until the first insured event. Then you realise that it’s more like paying for security and personal peace of mind.

After all, various “troubles” may well happen to your goods on the road:

• it can be lost;
• stolen as a result of a robbery;
• it may be “lost” due to the fault of the carrier or circumstances (bad weather conditions, fire, accident, collision, etc.). By the way, many of these cases are not included in the basic insurance, i.e. if (conditionally) the ship is in distress and throws your containers overboard to facilitate manoeuvring, you will not receive compensation for their loss.

Or, most likely, your goods may reach their destination in an improper condition or incomplete set. According to the American logistics corporation Flexport, ⅓ of all insurance claims are made due to negligent handling of cargo.

That is, the risks of losses are really high, and insured events are not isolated and occur every day.

What can be insured?

The most popular is freight loss insurance. However, there are policies that cover not only the cargo itself, but also other possible losses (including financial):

• transport and/or customs costs associated with delivery to the destination;
• lost profits (not exceeding 10%);
• military or strike risks, etc.

There is no point in listing all possible options, as the coverage depends on the policy of the chosen insurance company (IC). For example, many insurance companies will offer you to include in the policy the protection of losses incurred as a result of improper loading and unloading operations. Others consider the contract to be completed when the container arrives at the warehouse. If something happens to the goods after this period, it will be extremely difficult to prove fault and receive payment.

What determines the cost of the policy?

It is important to understand that any insurance is generally very optional. Thus, the cost will depend on:

• type of coverage: with liability for all possible risks (which is naturally more expensive), or for agreed risks (the most likely ones that you have noted when drawing up the contract)

• coverage areas (taking into account the distance of transportation, route and hazard category);

• mode of transport (air/sea/land or multimodal);

• form of the contract (one-time or general).

When calculating the tariff, the insurance company will also take into account the type and value of the goods, volume and packaging, overloads, security and other factors.

One of them is the deductible (the amount below which you cannot receive compensation). For example, you decide to insure a cargo for $100,000 with a deductible of $1250. The amount of the established loss is $1200. You will not receive a payment (because it is $50 less than the deductible, i.e. it is your share of the liability).

Cargo insurance for maritime transport

There is such a thing as “basic marine line insurance”, which is only $2 per kilogram. This is clearly not enough to compensate for the damage.

Therefore, it makes sense to choose additional classes of coverage: experts in the region believe that it is optimal to secure 110% of the value of the cargo and freight costs.

For those who are interested in the question: “What kind of insurance should I choose in the US?”, we would like to answer the following: often, the policy will be offered to you by the carrier itself. This means that there is not always a need to monitor the market and look for the best deals on your own, or spend time miscalculating the terms of contracts. It is important to understand that most maritime companies do not have licences and permits for insurance activities, so they act only as intermediaries, having stable partnerships with insurance companies (and sometimes more favourable conditions).

How are payments made?

It is naive to expect that the insurance company will pay the full amount specified in the contract with a generous hand and without any questions. Therefore, if an insured event does occur with your cargo, be prepared for the following scenario:

1. Filing a report on the incident and providing the necessary documentation.
2. Conducting an investigation, identifying the causes and perpetrators.
3. Approval of damage assessment.
4. Deciding on the amount of payment (or its complete absence).
5. Litigation if the parties do not reach an agreement.

But despite all the nuances, insurance has been and remains a necessary expense for those who want to ensure the stability of their business and protect against unforeseen circumstances.