Cargo Insurance 101

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Let's talk about cargo insurance.

The International Risk Management Institute defines cargo insurance as inland or ocean marine insurance covering property and transit. So let's break this down. In standard US Cargo Policies, the journey or coverage begins from the moment the goods are picked up at the origin warehouse to the time they are dropped off at the final destination.

The purpose of cargo insurance is to ensure the policy holder is indemnified or made whole for covered financial losses, as described in the terms and conditions of each individual policy. Unfortunately, many companies moving goods don't see the importance of insurance until they've experienced a loss or damage to the goods they were not able to recover from.

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Speaker 1: Now, let's look at insurance and shipping. The concept of insurance for moving goods around the world is often overlooked. There are various reasons as to why this is.

Speaker 1: Many companies believe that there isn't much risk in shipping goods or that carriers will completely cover the loss. They may also believe the risk is covered under their company's general liability or property insurance policy, or even that their goods are not worth being insured.

Speaker 1: Let's address the first thought of loss being covered by the carrier.

Speaker 1: Not only do carriers limit their liability. Even worse, they can be totally immune from liability. For example, carriers do not cover losses or damages that result from acts of God, an event that is outside of human control. Earthquakes, tornadoes, and other natural disasters would fall into this category.

Speaker 1: In addition, shipping goods around the world is very perilous business. Loss and/or damage can happen at any part of the journey.

Speaker 1: Think about the number of carriers and hands that touch one shipment from start to finish. The more points of contact there are and the more time someone touches that cargo, the likelihood of something going wrong goes up.

Speaker 1: To put this into perspective, an analysis of 230,000 marine insurance claims was completed. The value of these claims resulted in losses of $10 billion.

Speaker 1: In 2019, there were approximately two cargo ship accidents per day.

Speaker 1: Additionally, some companies believe that their goods in transit are covered under provisions in either their corporate general liability or property policies.

Speaker 1: Most of the time, this is not the case. The majority of general liability and property policies have specific exclusions regarding coverage for goods and transit.

Speaker 1: Insurance is a risk transferring technique. If a company suffers a loss, they may not be able to continue their day-to-day operations with their funds being all tied up in one particular shipment. This causes companies to question, how will we be impacted and recover from loss or damage when things go wrong?

Speaker 1: This is one of the many reasons companies choose to purchase cargo insurance. They will receive payout for the loss or damage of goods without providing who is at fault. And many times, they will receive full payout of the loss or damage subject to the terms and conditions of the cargo insurance policy.

Speaker 1: Another benefit of insurance is that many of the causes of loss that are not covered by freight carriers are automatically included in cargo insurance policies. At the end of the day, it's important for you to understand how your investment is protected.

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Let's look at purchasing cargo insurance. When insurance is purchased, it's much easier to make a claim with your insurance company than to try to recover from the freight carrier on your own.

Depending on who you purchase insurance from, claims are handled either by your insurance broker or your freight forwarder.

All you have to do is notify them of the claim and provide any other documentation that's requested. The insurance carrier will then pay the claim per the terms and conditions of the insurance policy. They may then seek financial recovery from the carriers or other at-fault parties.

You can purchase car insurance through either an insurance broker or a freight forwarder. Let's start with the first option of purchasing insurance from an insurance broker.

Examples of necessary information can include estimated annual shipment volume, shipping trade lanes, and previous loss information. Once the insurance broker has all the information they need, they'll approach the insurance carriers for quotes. The broker will then provide several policy options.

Most insurance brokers are only able to offer annual policy terms. The company will make one payment for insurance coverage, and that coverage will be in place for all shipments in that one-year policy period.

Now, let's explore the second option of purchasing insurance through a freight forwarder.

Most commonly, a company will simply let their insurance team know that they would like to purchase insurance for their future shipments. The insurance team will then ensure coverage is procured for shipments from that point forward. While some providers may be limited to selling annual policies, freight forwarders tend to make per shipment coverage options available to provide flexible pay-as-you-go solutions.

Oftentimes, companies that are unable to accurately forecast volume will lean toward utilizing the per shipment solution. At Flexport, we are a fully licensed insurance broker and a freight forwarder. And we can provide both per-shipment coverage and annual policies.

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