What is Cargo Insurance :: Cargo Insurance Australia

Most regular shippers, ‘exporters/suppliers’ will have their own Annual or Open cargo insurance cover which, provides insurance for all the exporter’s shipments of goods that the exporter ships during the annual period of cover, or lesser period of cover if required.

At the commencement of the Annual or Open cover, the exporter/supplier will usually estimate the value of cargo, and the number of shipments to occur within the period of cover. At the end of the period of cover, a formula is applied to the total value of cargo shipped, and by the number of shipments made in combination with other salient factors to determine an ultimate premium payable.

This type of insurance adjustment system allows the exporter a high degree of flexibility within their business and in many circumstances the exporter will have the ability to include within their cover, an extension of cover for the customer/buyer of the shipment.

Indeed, many exporters and trading companies sell ‘Cargo Insurance’ on to their customers in a ‘price package’ - we call this ‘Cost Insurance and Freight’ (CIF) which allows the exporter to arrange cargo insurance at their end, usually on an ‘open cover’ basis.

Because the exporter can, in most circumstances, pass on the insurance cost to the customer, and for which the exporter will often earn a commission on the CIF premium charged, this type of arrangement has become more common practice, especially where individuals and small businesses requirements are limited to a single cargo shipment.

Many buyers/customers see this as essential service provided by the exporter, indeed, exporters who do not provide a ‘package price’ inclusive of CIF can lose business to competitors who do.

The other side of the coin however, is while in theory the customer gets the benefit of the insurance, so to does the exporter and thus, pitfalls and gaps in the insurance cover are regularly encountered by both the exporter and importer where a claim dispute arises.

For example, the customer is totally reliant on the exporter to have arranged adequate insurance on the goods being shipped (ie; has the exporter got the professional financial services qualifications and experience in order to ensure the insurance cover is adequate to meet the customer’s needs – have they put the customer’s needs ahead of their own interests after all, they can have opposing positions if a claim dispute was to arise, - has the exporter chosen the insurer for its reputation and products or, has the choice been made on the highest commission the exporter can earn).

Similarly, the exporter has to insure their own interests, for instance - if the goods arrive damaged or if the buyer’s insurance does not cover the loss, the exporter may not receive payment. Additionally if the goods or shipping documents are rejected on arrival at destination, the insurance risk can often revert to the exporter who may not have taken out any insurance for their own risk.

Contingency (seller’s interest) insurance; As an exporter you may often sell goods on terms where your customer (as the importer) is responsible for insuring (or at least bearing the risk of damage of or loss to) the goods, where for example the exporter could be exposed to the risk of damage to the goods while in transit and/or if the customer refused to accept them. In the worst case your customer may not have insured the goods.

If this happens and your customer attempts to avoid liability, you could seek redress through the legal system. However, this can prove very expensive, and may often be pointless. Seller’s interest insurance, usually for a small premium, will cover you for this contingency. For valid commercial reasons you may not wish your customer to know you have taken out such a policy.

As mention above in the opening paragraph for ‘exporters’, importers (customers) often assume the suppliers/exporters are including the cargo insurance for free ‘within the package’ however, as alerted the cost will almost always be included, but hidden in the package price.

In addition to obtaining information from exporter/suppliers about the specific insurance costs and whether those costs are being loaded with additional fees on top of the base premium, importers/customers have to consider whether or not, the exporter has the professional financial services qualifications and experience in order to ensure the insurance cover is adequate to meet the customer’s needs – has the exporter put their own needs ahead of their customer’s interests after all, each the exporter and importer could end up in opposing positions if a claim dispute was to arise, - has the exporter chosen the insurer for its reputation and products or, has the choice been made on the highest commission the exporter can earn ).

Indeed, the security of some overseas insurers may not compare favourably with the security of insurers in highly the regulated markets of Western Europe, in particular the UK and Australia and New Zealand etc’. A Cargo claim could happen anywhere on Earth therefore, one wants to be reasonably assured that their cargo insurer has at least arrangements with local assessors and claim adjusters in order to deal with claims when and if they occur.

Another important issue is the type of cover being provided – is it comprehensive ‘all risks’ or just ‘total loss’ only? Is it on a warehouse to warehouse basis or just warehouse to destination port?

Without all this information, importers may not realise they are paying too much for insurance which in any event might not meet all their needs, and in all probability may leave them with an uninsured exposure.

By having a specialist insurance broker such Cargo Safe arrange your insurance, customers/imports can take control of their own cargo insurance which often leads to a more comprehensive and price competitive cover than available from the exporter. Indeed, Cargo Safe is a very selective broker, utilising the services of only those insurers with the reputation, experience and specialised products to meet our client’s requirements.

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