Cargo insurance, to many people who don’t deal with it every day, can be hard to understand and may seem like it’s written in another language (which makes sense, considering the first written evidence of this type of coverage dates back to the 1300s). Here are five things that insurance agents and brokers should keep in mind about insuring cargo:
Uniqueness. Ocean cargo is not like other insurance. In fact, ocean cargo is distinctly different even from motor truck cargo insurance. It uses specialized coverage forms and has its own set of wordings. Agents and brokers placing ocean cargo coverage need to collect information for the cargo application that goes beyond what’s required in most ACORD forms.
More risk than meets the eye. Clients may have ocean cargo exposures that aren’t readily apparent. Understanding a client’s business operations is critically important for risk advisers. Asking a few questions can help agents and brokers determine if a customer has a marine cargo insurance need:
- Does the client have foreign sales?
- Is it buying goods and/or raw materials from foreign suppliers?
- Does it have sales representatives in foreign countries?
- Is the client shipping goods to or from Alaska, Hawaii or Puerto Rico?
For example, a manufacturer might import components for its U.S. manufacturing operations and then sell those completed products to customers in the U.S., including Hawaii, Alaska, Puerto Rico or other locations. When those products are transported on ships or international airspace, the manufacturer has marine cargo that needs protection.
I remember a financial services company advertisement from years back that featured conversations between friends. One person said, “How did your stockbroker know that you were planning to… (go into business in retirement, plan a big trip, etc.)?” The other person replied, “He/she asked.” There’s a lesson in this for insurance agents and brokers. Sometimes a simple conversation unveils activities or plans that can generate big exposures. When a client can benefit from insurance on those things, it pays to ask!
Even common risks can be big. As specialized as marine cargo insurance is, even everyday types of claims can generate big losses. That’s why it’s important for cargo owners to have adequate protection. Some common risks in oceangoing cargo include: heavy weather, at sea or in port; vessel fires; rough handling; and theft. Another risk in cargo insurance is known as General Average. This is a principle in which cargo owners share responsibility for losses at sea. Under General Average, even if a cargo owner’s own goods are not damaged, in the event of a loss at sea that impacts the entire voyage, the cargo may not be released from the ship until the cargo owner or its insurer confirms the ability to pay its share of the damage.
Understanding valuation and financial risks are critical? How cargo is valued makes a big difference in determining adequate coverage. Valuation is a critical element of any marine cargo policy and is the basis for how claims will be settled.
Standard valuation is based on invoice cost, but that’s not always the best way to cover the shipper’s financial interests. For example, are the goods seasonal or intended for a one-time use or project? The invoice on imported goods may not reflect all costs associated with a potential claim, including lost profits. Are any shipments sent without an invoice (e.g. inter-company shipments)? Damage that destroys or delays seasonal, irreplaceable, or specific-use goods can have a significant impact on the shipper’s sales or ability to provide services. Here’s an example: nobody clamors to buy Christmas trees in January because the trees have little commercial value once the holiday season is over.
The customer’s financial risk is equally important. Consider exported goods sold at the risk of the buyer: is the shipper fully paid for exports prior to shipping, or is the balance due upon arrival in sound condition? The buyer may be “at risk,” but that may not keep them from withholding payment on goods that arrive damaged. Contingent coverage can be purchased to protect the insured’s financial interest in trade transactions where the other party is responsible for marine insurance.
Specialty expertise in marine cargo is valuable. Common policies don’t always fit uncommon risks and exposures such as those in marine cargo. Working with a knowledgeable underwriting and claims team can make a huge difference for cargo owners. One of the ways that Tokio Marine America delivers anshin — the Japanese word meaning safety, security and peace of mind — is through our expertise and claims service in ocean cargo.
Agents and brokers should discuss business needs with their customers and determine if they have cargo exposures. To ensure adequate protection and deliver peace of mind, agents and brokers also should talk with Tokio Marine America about their customers’ cargo risks. Our teams are here to help you.
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