For the good of the goods: avoiding the common pitfalls of cargo insurance is often a matter of simply covering your bases.
* If you want to protect your cargo, you can start by asking just a few questions.
* Is your conveyance Iimit high enough to cover your average or maximum shipment size?
* Is your list of export countries up to date?
* Does your coverage include a war risks policy and a strikes, riots or civil commotions (S.R. & C.C.) endorsement?
Transporting cargo across the ocean can be a risky endeavor and recent headlines have put the spotlight on these risks. For instance, piracy attacks more than doubled during the first six months of 2009 compared with the same period in 2008, according to the ICC International Maritime Bureau's Piracy Reporting Centre.
There is also the potential for more common losses due to damage or theft during customs checks of your goods, improper loading techniques by your trade partners or poor navigation that occasionally causes ships to run aground. A catastrophic weather event like a hurricane can also spell disaster for your ocean cargo.
While these are real and serious threats, they should not keep you from conducting business in lucrative overseas markets. As long as your goods are covered by cargo insurance, you can protect your business from the risks associated with moving goods across the ocean.
That said, not all cargo insurance policies are created equal and simply securing a policy doesn't protect you from every risk imaginable. You should take the time to review your cargo insurance policies to ensure you are adequately protected against major transportation risks. As you review your policies, to help you avoid some of the most common gaps in insuring your cargo, here are five questions to ask yourself along with tips on how to avoid those gaps in coverage.
1. Is your conveyance limit high enough to cover your average or maximum shipment size?
As your company makes headway into overseas markets, you can expect the value of your shipments to grow over time. Here's a scenario to illustrate this point:
A cargo insurance policy with a $50,000 conveyance limit may be sufficient for a company that just started exporting to a country in Asia, with shipments averaging about $50,000 and maxing out at a few thousand dollars more. But that average shipment size can increase substantially as the company continues to grow. If the policy's conveyance limit remains at $50,000 but the average shipment sizes double, the gap in coverage could result in a big loss for the policyholder if the goods in transit were lost or damaged.
Bottom line: Whether you are shipping cotton balls or computer chips, make sure your cargo insurance policy is structured to cover the entire value of your goods.
2. Is your list of export countries up to date?
The Internet and other technologies have helped to "shrink" our world, making it easier to compete in the lucrative global marketplace. It's smart to look to overseas markets for growth opportunities, but adding additional trade lanes or expanding the roster of countries to which you export should signal a time to reassess your cargo insurance policy.
Too many companies fail to add additional export countries and trade lanes to their policies as they grow their network. A claim is more likely to be rejected if it occurs in an unidentified trade lane, and the rate you pay is often based on this information. To avoid the shock and added cost of a rejected claim, continuously review your policy to make sure it's updated.
3. Does your coverage include a war risks policy and a strikes, riots or civil commotions (S.R. & C. C.) endorsement?
When exporting overseas, you must be aware of the political, social, and cultural situations in each trade lane and in each country. Let's say labor unrest in one country leads to a shipment being lost or damaged. Are you protected against this type of loss?
Consider adding to your cargo policy an S.R. & C.C. endorsement, which is an exemption in ocean marine policy for losses caused by strikes, riots, and civil commotion. This endorsement can cover damage or loss to your insured goods caused by strikers, locked-out workmen, those taking part in labor disturbances, riots or civil commotions, vandalism, sabotage, and malicious acts.
You must also be aware of wars and conflicts along your trade lanes and work with your transportation provider to make sure your goods are covered in a war zone. A war risks policy, usually a companion to a marine open cargo policy, insures against war and most perils arising from hostilities, but excludes loss or damage resulting from the hostile use of nuclear weapons.
Both the S.R. & C.C. endorsement and the war risks policy can be inexpensive additions to your overall open cargo policy and can protect your business from unnecessary risk. Talk to your licensed cargo insurance broker for more information about adding this endorsement.
4. Are you exposed to too much risk with limited coverage, such as a "Free of Particular Average" (FPA) policy?
Limited-coverage policies, such as FPA policies, generally provide less coverage than all-risk policies. An FPA policy will generally protect you against losses and damages to your goods only if the vessel carrying your goods is stranded, is involved in a collision, or if it sinks or burns. So, if ocean water wets and damages your goods while at sea, and none of the previously mentioned scenarios are involved, the resulting loss is not insured.
If you are exporting high-value shipments under an FPA policy, consider increasing your protection with an all-risk policy, which covers any damage or loss by any cause as laid out in the policy, as opposed to policies that protect only against certain causes and not others.
5. Are you leaning on your trading partner or supplier to insure your goods?
Trusting trade partners to properly insure your in-transit goods can lead to significant gaps in coverage. You must be aware of international commercial terms of the transaction, which divide costs and responsibilities of the transaction among the trade partners involved.
If ownership is not clearly articulated throughout the transaction, or if you simply assume the goods are covered by another trade partner, your company may be facing considerable risk. Your supplier might not have sufficient coverage--or may not have any at all, for that matter--so consider contingency coverage, even if it's not required, to avoid relying too much on overseas trade partners.
Additionally, If your trading partners purchase insurance with an insurer that is not admitted in the U.S., or if their policy stipulates that claims will be settled in another country, you may have to pursue the settlement of claims outside of the U.S., where your expenses may be high and your likelihood of winning a legitimate dispute may be compromised.
After asking yourself these five questions and assessing your current cargo risks, you may be looking for an insurance provider that can help fill in the gaps. Consider the following tips as you go through the process of selecting a provider:
Only purchase insurance from a company with an A--rating or better. These companies are more likely to meet their claim obligations than those without. And even if a company carries an A--rating, make sure they have a solid track record of dealing with problems in a timely manner.
If you decide to purchase insurance from a freight forwarder, be forewarned that changes can occur to limits, deductibles, and coverage as goods move from warehouse to truck to boat. Insurance offered by freight forwarders is also generally more expensive than a policy you sourced on your own. A cargo insurance solution, such as the one offered by UPS Capital Insurance Agency Inc., can provide you with one rate with customizable deductibles for goods throughout your supply chain, no matter what mode of transportation or what carrier is used, anywhere in the world.
* Statistics from the ICC International Maritime Bureau's Piracy Reporting Center.
MARK ROBINSON is vice president, Trade Protection Services, for UPS Capital Corporation, and president of UPS Capital Insurance Agency Inc. UPS Capital is the financial services arm of UPS. For more information about UPS Capital, please visit capital.ups.com or call 1-877-263-8772.
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|Publication:||Risk & Insurance|
|Date:||Dec 1, 2009|
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