Why do I need marine insurance?
Every business that makes or trades physical products needs some form of cargo insurance, yet all too often importers and exporters tell their brokers that they’ve already got it covered.
When their storage and distribution needs are catered for by commercial combined policies, many businesses simply relinquish control of the insurance of imports and exports, leaving it to suppliers or freight forwarders.
Who needs cargo insurance?
Cargo insurance is required by any business that manufactures or buys or sells finished products, components or raw materials.
As goods move across sea, land or international borders, tracking them becomes both increasingly important and increasingly difficult. With globalisation meaning even more trade with less developed countries, for example, the risk to goods in transit of theft or damage continues to rise.
Ascend Cargo has the solution.
Marine cargo covers any movement of goods in the UK and around the world
Who needs cargo insurance?
Those who rely on insurance arranged by freight forwarders may not be certain about:
• the level of cover,
• the financial stability of the insurer,
• the claims service they will receive, or
• the true cost of the cover.
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Make an enquiry
If you buy, sell import or export goods then you will need to purchase marine cargo insurance
It is inevitable that from time to time accidents will happen, or goods may be lost, damaged or stolen during their journey to their final destination.
Many firms choose to utilise the services of a Haulage Contractor, and a common misconception is that their goods are fully insured by the haulier. This is not always the case. Hauliers do not insure your goods; in most circumstances they only cover their Legal Liability and this will be limited in value – for example standard Road Haulage Association (RHA) terms are £1,300 per ton regardless of the type of goods carried. In addition, the cover is for Haulier’s Legal liability, so they may avoid liability if they were not legally negligent.
Assuming your claim against the haulier is valid, and covered in full, do you want to rely on their insurance policy? What if the policy has lapsed, or has clauses and warranties that the haulier has not complied with? Who is the haulier’s insurer going to work for in the event of a claim?
Speak to us today about your requirements and to ensure you are protected on the correct basis.
Carrier’s trading conditions
If you rely on carriers’ trading conditions you may not realise just how restrictive those conditions can be in terms of:
• The circumstances in which the carrier has to pay for loss or damage, and how little the carrier might actually pay in compensation.
These questions aim to highlight some of the potential problems and to demonstrate the benefits of buyers and sellers arranging insurance cover.
Terms of sale
- Various obligations of the seller and the buyer
- How various costs relating to the shipment are to be shared between parties
- When risk in the goods passes from the seller to the buyer.
- In particular, under two of the terms – CIF and CIP – insurance is arranged by the seller for the buyer’s benefit during the main carriage.
Case study – relying on haulier’s insurance
Relying on haulier’s cover – don’t do it!
We were introduced to a company who until recently did not purchase Marine Cargo Insurance, and were left out of pocket following a claim. They incorrectly assumed, as they were using a haulage company to move their goods, that loss or damage would be covered by the haulier’s insurance. This is not correct. Haulier’s are only liable for their legal liability to your goods, not the goods themselves. Therefore, it would need to be proven that they were legally negligent in causing loss or damage before any compensation was due to you.
You must consider:
- Even if negligence is proven, usually their liability is limited under the terms of RHA Conditions (or similar) – this would typically be £1,300 per ton regardless of the goods being carried. This could leave you seriously out of pocket.
- Losses outside of the haulier’s control are not covered – “acts of god”
- Are the limits of indemnity on the haulier’s policy adequate? Who are they insured with, are they a reputable and solvent? Is the haulier you speak with actually the one moving the goods? It is common practice for hauliers to sub-contract work to other firms, so even if you check your haulier, it may be in vain if they are sub-contracting to another company who may even sub-contract the work again themselves!
The solution
Protect your bottom line and purchase Marine Cargo Insurance. It may be cheaper than you think (premiums start as low as £250) and we can review with you your exposures to tailor a policy on your behalf.
Typical Limitation Figures
- UK road haulage – RHA conditions GBP1.30 per kg
- International road haulage – CMR SDR8.33 (about GBP9.09*) per kg
- Freight forwarding – BIFA conditions SDR2.00 (about GBP2.20*) per kg
- Carriage by air – Warsaw Convention USD20.00 (about GBP11.90*) per kg
- Carriage by sea – Hague-Visby Rules SDR2.00 (about GBP2.20*) per kg
Cargo insurance typically covers all risks of physical loss of, or damage to, goods during transit, imports, exports and domestic carriage, including any incidental storage. Storage outside the ordinary course of transit can be added as an extension to a cargo insurance policy.
Ascend Cargo has the solution.
Cargo insurance is generally available to or from ports or places worldwide, however;
- Terms and conditions may vary for countries where there are higher than normal risks of war or terrorism
- Cover may not be available where trade is subject to international sanctions
- Cover may not be available for the inland leg to or from the port in countries where the infrastructure is poor or where there is an unacceptable theft risk
- Some countries require insurance to be placed locally or restrict the terms of sale or purchase (Incoterm) that can be used.
Ascend Cargo has the solution.
Problems sometimes arise where buyers or sellers don’t arrange their own insurance, relying instead on:
- Their suppliers or customers arranging cargo insurance, or
- A freight forwarder arranging insurance for them.
Those who think that carriers will pay for loss or damage may be surprised that contracts of carriage generally limit the liability of the carrier and can exclude it altogether.
Negligence is the failure to use reasonable care resulting in damage or injury to the imported commodities, for example, shipping time-sensitive goods into a known congested port.
This refers to the deterioration of physical objects because of the fundamental instability of the components of which they are made, as opposed to deterioration caused by external forces. For example, fruits and chemicals naturally deteriorate without the influence of detrimental outside forces.
This stands for ‘War, strikes, riots, and civil commotions.’ An ordinary marine insurance policy does not cover loss due to these conditions but is almost always added back to the policy by insurers.
If the cargo is damaged and this results in the loss of profits from those goods, insurance will only cover the cost of the goods and not the potential profits. If the importer ordered goods for a specific event or customer and delay causes the goods to no longer be wanted, they can’t claim the lost sale.
If the client fails to pay during any point in the supply chain resulting in any loss of goods, the marine insurance will not cover the loss.
This refers to any loss, damage, or expense attributable to the willful misconduct of the insured. For example, the importer could purposefully ship goods set to expire before arrival for the purpose of seeking a claim.
This refers to any loss, damage, or expense caused by insufficient or unsuitable packing only when packed by the insured.
This refers to loss, damage, or expense arising from insolvency or financial default of the owners, managers, charterers, or operators of the vessel. This means that the carrier is facing a financial shortage.
Ordinary leakage, ordinary loss in weight or volume, or ordinary wear and tear are generally excluded from all-risk policies.
Global transportation solutions for a global marketplace
As goods cross borders by land, air or sea keeping control becomes increasingly difficult. Technological advances have also created high expectations by customers in terms of manufacture and delivery. Supply chains need to be protected from disruption and the negative impacts on customer loyalty, company reputation and cash flow. Globalisation has made trade with less developed countries a reality, where weaker logistics infrastructure and theft may pose threats to delivery.
Typical Claims
Whilst a deductible or excess is often viewed as a type of self-insurance, a self-insured retention increases a company’s financial interest by requiring it to pay and actively manage claims up to a certain pre-determined amount.
When adopting a self-insured retention, an awareness of insurance, claims handling and risk control is required. Consequently, this approach was best suited to larger companies that have the resources and knowledge to manage their claims exposures. By creating an awareness of these exposures, providing you with access to our risk management portal & applying resources to manage them can often be a first-step towards a broader self-insurance arrangements.
Often, clients reach the stage where they perceive that the cost of the premium is excessive given the nature of the risk, and their own claims history. This is where a decision has to be made. Do we continue to pay away premiums and subsidise the insurers and their clients with higher claims histories? Or do we investigate alternatives to conventional insurance? If we choose the latter, this is called “Alternative Risk Funding”.
The most basic form of “Alternative Risk Funding” is Self Insurance. Self Insurance may take the form of just accepting the risk, doing nothing, and dealing with each loss as and when it happens. Alternatively, it may include setting up internal funds specifically set aside for the particular risks involved.
The form of self insurance chosen will depend on the size and number of losses expected. High frequency, relatively low cost losses such as Motor Own Damage are well suited to self funding. We suggested that Third party injury and damage losses are, initially, omitted from the exercise. Third Party claims are less controllable
than Own Damage. It is preferable that the funds set aside for self insurance are closed off as soon as possible at the end of each year to ensure the accuracy of loss data upon which the following years’ Self Insurance will be based. Typically, third party claims, especially those involving injury, take far longer to settle than “in house” own damage losses.
Insurers apply varying level of analysis to past claims histories to establish future premiums. For large motor fleets, the “Burning Cost” basis is frequently used. Other, more statistically accurate, methods are also used. However for the purpose of this exercise, we will follow the method commonly used in the industry.
You don’t have to pay insurance premium tax (IPT), on any self-insured fund which is now 12%.
There are however additional set up charges and normally a letter of credit will be required by the insurer who will step in at a pre agreed claim level.
Fleets that self-insure need to ensure that all drivers are focused on the cost of collisions, preventing them and – in the event that they do occur – reporting them quickly and efficiently so that the third party claims can be handled appropriately.
Self-insuring sharpens fleets need to have robust risk management procedures. Fleets that place a strong emphasis on risk management are more than likely to be the ones that actively consider implementing self-insurance.
We have noticed an increase in the number of queries from fleets looking to implement self-insurance recently, although the numbers involved are still relatively small in the context of the numbers of conventionally insured fleets once costs have been reviewed.
Frequently Asked Questions
Marine cargo insurance covers losses arising from physical damage to goods whilst being transported around the world, whether by road, rail, sea or air.
Any number of things can happen to your goods while they are being transported. They could be stolen en route or destroyed in a collision at sea; either way resulting in a financial burden for you, if not insured. Marine cargo goes beyond the cover provided by goods in transit insurance. It ensures your goods are protected during loading and unloading, while in storage, or while being transported – domestically or internationally.
Marine cargo insurance covers a range of goods, from raw materials and single components, through to finished products and appliances. It’s designed for any business – large or small –that imports, exports and/or distributes goods around the UK, such as manufacturers, wholesalers, retailers and distributors.
It reduces your exposure to financial loss – whether buying or selling goods, you have a financial interest in their safe transportation and delivery. Marine cargo insurance protects your interest in the event of a loss.
It’s usually a contractual requirement – as part of the sale contract, it’s often a commercial necessity to have marine cargo insurance. Being able to quickly replace damaged goods will help you maintain strong customer relationships. Marine cargo insurance can also protect the interests of the banks or third parties helping to finance the transaction.
Carrier’s liability insurance won’t fully protect you – haulage and shipping companies may be responsible for the transportation of your goods, but their liability will be limited by contract or law in the event of loss.
Furthermore, carrier’s liability insurance doesn’t cover many common causes of loss, such as General Average. Any compensation available often falls short of the full valuation of the goods and pursuing overseas hauliers can be a difficult and time-consuming process.
Your clients can maintain control of their own insurance – if a UK retailer imports goods from China, the cost of marine cargo insurance is likely to be included as part of the sales contract. The insurance is then taken out with a Chinese insurer by the supplier. In the event that the goods are damaged en route, the UK retailer would have to deal with the Chinese insurer via a UK agent – someone with whom he has no usual contact or relationship.
The simpler alternative is for the UK retailer to arrange their own marine cargo insurance via a UK broker and insurer. The sales contract would be amended to reflect that responsibility for insurance now sits with the buyer. In the event of a claim, the process would be much quicker and easier, and the cost of insurance is likely to be far more competitive.
Protection from General Average – General Average is a legal principle in maritime law, whereby all cargo owners proportionately share losses resulting from voluntary sacrifice or costs incurred in order to prevent a total loss. Following the declaration of a General Average, cargo will be held pending receipt of General Average Guarantees and Bonds. Cargo owners are well advised to be insured, so their insurers can handle these situations on your behalf and provide the required guarantees to allow your cargo to be released.
It reduces your exposure to financial loss – whether buying or selling
goods, you have a financial interest in their safe transportation and delivery.
Marine cargo insurance protects your interest in the event of a loss.
It’s usually a contractual requirement – as part of the sale contract, it’s often a commercial necessity to have marine cargo insurance. Being able to quickly replace damaged goods will help you maintain strong customer relationships.
Marine cargo insurance can also protect the interests of the banks or third parties helping to finance the transaction.
Carrier’s liability insurance won’t fully protect you – haulage and shipping companies may be responsible for the transportation of your goods, but their liability will be limited by contract or law in the event of loss.
Furthermore, carrier’s liability insurance doesn’t cover many common causes of loss, such as General Average. Any compensation available often falls short of the full valuation of the goods and pursuing overseas hauliers can be a difficult and time-consuming process.
Your clients can maintain control of their own insurance – if a UK retailer imports goods from China, the cost of marine cargo insurance is likely to be included as part of the sales contract. The insurance is then taken out with a Chinese insurer by the supplier. In the event that the goods are damaged en route, the UK retailer would have to deal with the Chinese insurer via a UK agent – someone with whom he has no usual contact or relationship.
The simpler alternative is for the UK retailer to arrange their own marine cargo insurance via a UK broker and insurer. The sales contract would be amended to reflect that responsibility for insurance now sits with the buyer. In the event of a claim, the process would be much quicker and easier, and the cost of insurance is likely to be far more competitive.
Protection from General Average – General Average is a legal principle in maritime law, whereby all cargo owners proportionately share losses resulting from voluntary sacrifice or costs incurred in order to prevent a total loss. Following the declaration of a General Average, cargo will be held pending receipt of General Average Guarantees and Bonds. Cargo owners are well advised to be insured, so their insurers can handle these situations on your behalf and provide the required guarantees to allow your cargo to be released.
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Who to speak to?
Matt Price Cert CII
Please contact Matt Price, who heads our marine division, for all marine enquiries. Matt has been specialising in marine insurance for a number of years and would be more than happy to discuss your needs. Matt’s contact details can be found below or, if you would prefer, please complete the contact form at the bottom of this page and Matt will contact you at your convenience.
Broking Director
T: 01245 449060 E:matt.price@ascendbroking.co.uk
Downloads
Marine Cargo Guide
Download our guide to marine cargo insurance
