International Cargo Insurance: Learn Why You Need It

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If you're in your first steps of exporting or importing, you'll need to learn about international freight and cargo insurance.

When discussing the most common types of insurance, we will focus on ocean freight insurance which usually covers air freight as well. Note that it is also possible to purchase specialized insurance coverage for air freight.

Marine cargo insurance is available with various levels of coverage. You will need to decide which type of insurance is most appropriate for your business, assets and severity of risk involved in transport. Again, it will be an easier decision to make if you know a little bit about each option.

Single or Open Coverage?

The first decision after choosing the best shipping option to your cargo will be to acquire Single or Open Coverage:

Single Coverage: This type of insurance is purchased per shipment. It only covers a single shipment and is generally the best choice for companies that make infrequent international shipments. However, if your company ships shipments frequently, it may not be cost-effective to make insurance plans for each shipment.

Open Coverage: This is a cargo insurance product that covers your shipments for a specific period, typically one year. You can cover all movements of your goods with the same policy, making it a more efficient way to manage risk if you ship products frequently.

Levels of Coverage

Having determined whether you will take out Single or Open Cover insurance policies, you will need to consider the level of coverage you need. A comprehensive guide to policies would require a much longer article than this one, so we'll focus on the most common types of cargo insurance coverage.

All Risk Coverage: Applicable to both air and marine cargo insurance, the full risk cover, as its name suggests, offers financial protection in the case of most events that lead to damage or loss of cargo. You should be able to purchase full risk coverage for most types of products as long as they are new and are not inherently vulnerable to breakage, deterioration, or loss.

However, even All Risk Insurance is normally subject to some exclusions, such as:

• Negligence on the part of the importer/exporter;
• Customs rejections or delays;
• Loss or damage arising from war, strikes, riots or civil unrest (WSRCC);
• Damage or loss as a result of natural disasters and earthquakes, for example;
• Customer's failure to pay, or seller's failure to collect payment.

Named Hazards Coverage: In contrast to all-risk insurance, named hazards coverage is limited to those risks that are explicitly stated in the policy. Therefore, this type of insurance is less comprehensive. Its main benefit is that you can provide coverage for hazards not covered by all-risk insurance.

Identified hazards may include:

• Cargo theft;
• Natural disasters;
• Bad weather;
• Collisions at sea or shipwreck;
• No delivery of cargo.

Overall Average and Its Significance: If you normally ship via ocean freight, the principle of the general average in ocean transport is an issue to keep in mind. As counterintuitive as it may seem, you should consider covering it as part of your cargo insurance strategy.

The principle stipulates that if any cargo is lost, dropped, destroyed, or damaged due to a problem at sea, the owners of all cargo on board must share the costs of recovering the losses. Therefore, even if your goods survive the incident, you are responsible for contributing to indemnify those whose cargo was lost.

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