Cargo insurers are about to finish annual renewals, thus it is a good time to make some reflections. This article aims to take away guesswork the cargo owner, exporter/importer has about cargo insurance, how to save on it and when you do not need it.
We hear too often, that cargo insurance is a must if you are shipping goods overseas. Or better say insurance companies and everyone else selling it love to speak about general average situations, vessel fires and other casualties which happen rarely. Thank God!
Below are most common traps cargo owners fall into:
❌ When you buy insurance and claim compensation for cargo damage, if the insurer does not come with the reasons not to pay, you get reimbursed. However, next insurance premium/ or next policy year premium will substantially increase. Short term reassurance turns into expenses later.
❌ You might have insurance deductible for each cargo claim to pay less premium. If claim falls under this amount you have to absorb loss for cargo damage and already have paid insurance premium.
❌ You might notify the insurance company about potential cargo damage as per their policy requirements, but never ask for compensation. The truth is, they record these notifications and will definitely take it into account looking for ways to increase your next premiums.
❌ Insurance companies will look for reasons to not to pay you. Such as cargo was damaged due to your fault, negligence in packing, stuffing, inherent vice etc., thus you can’t count on cargo insurance to save money on poor packing or to cover your negligent contractor.
Below are actionable tips on how to be protected and still save money
Action Step 1. Consider not buying insurance cover for low value cargo. If damage happens, pursue claim directly against transportation company. Use external provider to give you a hand if you lack for time or lack the knowledge to embark on claiming process yourself.
Action Step 2. For other cargoes, you might consider buying insurance cover with the highest deductible possible and the lowest premium you can get in the market. When damage happens quickly assess if damage extent is above or below deductible.
- If below – there is no need to inform cargo insurer (refer to argument above). Instead, pursue claim against liable party.
- If damage extent is above deductible you can timely inform insurer, but do not ask compensation yet. Simultaneously pursue liable party to obtain compensation. If you win claim against liable party, you won’t need insurance payment. If liable party keeps rejecting your claim – only now it’s the time to claim compensation from your cargo insurer. Insurance company will appreciate, that you took active steps to chase liable party yourself. This plan of action is the only way to keep your insurance premium stable and be in control of exposure.
Action Step 3. Think for a moment: today we have situation when cargo owners have to pay freight, pay cargo insurance and/or absorb losses. But they rarely claim compensation for damages from liable party, who actually was negligent and damaged or lost your cargo…if I was a restaurant owner and in order to eat at my place, I imposed customers to buy insurance or do not claim compensation after chef poisoned you. You would definitely say this place is #nuts. So why do we think it is OK in cargo transportation industry to pay for freight, surcharges etc. and absorb losses when carrier is negligent? What if we changed paradigm we approach cargo claims: kept insurance for biggest, unavoidable, unpredictable casualties and claimed compensation for damages from liable parties? We do not have to look far for success stories. Air passenger compensations from airlines substantially increased after “weak” parties started eventually defending themselves.