Cargo Insurance: Why You Should Take It
Let’s begin by taking a closer look at the limitations associated with purchasing a cargo insurance policy:
The limitations of cargo insurance
Cargo insurance definitely has its limitations. Not all instances of loss fall under the protection of an insurance policy. There is not a single, standardised form of cargo insurance that a transportation or logistics company can purchase to protect themselves against every situation.
There are different types of B2B cargo insurance options available on the market today. However, some insurance policies may carry the name ‘all risk’ or ‘legal liability.’ At first blush, one may assume that something is in a name. Unfortunately, limitations still exist within those policies in spite of characterisations for marketing purposes.
Overall, it’s critical for shippers to determine and document the value on all cargo in case of loss, damage, or dispute claims arise. Companies who find themselves at the centre of a claim may want to discuss their insurance and coverage options with an attorney or insurance agent.
Types of cargo insurance on the market
Cargo insurance is available for international and domestic transportation and shipment. While it’s difficult to standardise and control coverage in another country, you can typically stretch international protection to the following types of policies:
Land cargo insurance
Land cargo insurance covers the aspects of trucks and other motor vehicles that travel by land. Plans often include protection against damage, accident, theft, and other associated risks of logistics and the transportation of goods on land. Insurers offer policies in varying length, coverage amounts, and conditions depending upon the needs of the seller or shipper.
Marine cargo insurance
Marine cargo insurance protects the transportation and logistics efforts of goods carried by air or sea. Policies of this nature can defend companies against damage against:
- Loading/unloading damages
- Weather contingencies
- Theft and piracy
- Loss and in-transport damage
In addition to the other types of coverage, there are policies available that also cover specific situations and carry their own benefits and drawbacks for the policyholder:
Open cover cargo policies
Open cover cargo policies benefit companies who require coverage regarding various loads. These types of plans come in two forms: renewable and permanent. Renewable policies allow customers to repurchase their coverage at regular intervals. Permanent policies begin and end for a specific period while allowing infinite shipments when they are active.
Specific cargo policies
Specific cargo policies work best for coverage on a particular shipment category or item. Sometimes referred to as ‘voyage policies,’ it’s essential to understand that only specific cargo shipments can benefit from this type of insurance protection due to their defined limitations.
Contingency insurance policy
Contingency insurance policies activate when the customer is responsible for insuring their shipments against theft, damage, or other losses. For example, some products are prone to damage during the delivery process, yet customers still refuse to sign for them. They believe that they avoid the liability of accepting damaged goods.
Shippers and sellers can rectify the situation that leverages legal action against the customer under the civil court system. Unfortunately, this step can also be expensive. Contingency insurance solves this problem by offering a cost-effective way to side-step fighting costly disputes.
The benefits of having cargo insurance
Cargo insurance covers the transit of shipments via land, air, rail, courier, and sea. Consider the following aspects regarding the benefits of cargo insurance coverage:
All-risk coverage protects against extensive damage or loss due to outside circumstances or external forces beyond the control of the shipper. Insurable situations may include:
- Damages caused by improper packing and handling
- Infestation of insects or varmin
- Cargo and shipment abandonment
- Customer refusal
- Employee theft and dishonesty
All-risk insurance policies are versatile in nature. Your insurance company can package options that are suitable for the types of goods you ship as well as how you transport them.
General average coverage
General average coverage is the standard minimum required insurance policies for shipments that occur on the water. It only covers partial losses, much to the chagrin of the policyholder. The policy requires the other cargo holding owners to contribute to the financial compensation regarding damage that occurs at sea.
Warehouse-to-warehouse coverage is unique in that it protects against the transportation liabilities associated with transferring goods between warehouses. Insurance companies are only willing to protect the holder’s cargo only for the specific instance of warehouse transportation. Coverage begins and ends at the door.
Should you take on cargo insurance policy?
First, cargo insurance is a necessary expense of conducting business as a transportation, logistics, or shipping company. Consider the consequence of forgoing this type of coverage. What would happen to your bottom line and reputation if an entire shipment was damaged or lost without any way to recuperate liabilities?
If it sounds rough, it is. Disconnects in insurance coverage can cause even older firms with lots of experience to buckle under such circumstances. Shipping companies are responsible for their fair share of losses, so make sure you protect yourself against liability.
The sweet spot for taking cargo insurance is when it costs you less to buy insurance on each product and make claims when things are lost or damaged than it costs you simply to replace the goods.
Final thoughts and considerations
The most conscientious and reliable shipping companies purchase insurance policies, not only to protect themselves but to protect their customers as well. They leverage business insights using data logging, circumstance monitoring, data collection and analysis to determine what their insurance needs are before meeting with a broker.
Like any new software or technology, working with a reputable provider optimises your chances of protecting every facet of your service offerings.
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