What does cargo insurance cover? Cargo insurance is a vital tool for businesses and individuals, protecting against potential losses such as damage, theft, or loss from the origin point to the final destination.
That is where cargo insurance comes in. Cargo insurance provides essential coverage to protect your goods in transit. This is particularly critical for those operating on credit, as regardless of the inco-terms, you risk financial loss if you have a financial exposure.
But what exactly does cargo insurance cover, and how does it work?
In this article, we will break down the key aspects of cargo insurance, what it covers, and how it can safeguard your shipments. Let’s get started right away!
What is Cargo Insurance?
Cargo insurance is a specialized policy that safeguards goods during transportation, whether by sea, air, or land. It provides coverage against potential risks such as damage, loss, or theft during transit, making it an essential component of the shipping and logistics industry by:
- Ensuring Financial Security: It compensates for losses, stabilizing the financial standing of businesses involved in trade against unforeseen risks.
- Facilitating Smooth Trade Operations: Covering potential risks promotes confidence in international and domestic trade activities.
What Does Cargo Insurance Cover?
Cargo insurance covers a wide range of risks that goods face during transport. Understanding the scope of coverage is essential for stakeholders to make informed decisions. Typically, cargo insurance encompasses:
1. Damage or Destruction
If the cargo is damaged or destroyed during transit due to accidents, mishandling, or poor packaging, cargo insurance can cover the replacement or repair cost.
2. Theft
If goods are stolen during transport, loading, unloading, or transit, cargo insurance provides coverage to help you recover the loss.
3. Loss of Cargo
Sometimes, goods may be lost altogether due to shipwrecks or vehicle accidents. Cargo insurance covers the total compensation loss in these cases.
4. Weather-related Damages
Natural disasters such as floods, hurricanes, or storms can cause significant damage to goods. Cargo insurance covers these risks when goods are damaged due to extreme weather conditions.
5. General Average Contribution/Guarantee
It is a principle of maritime law that requires ship and cargo owners (shipper/consignee) also to share proportionately the costs associated with the rescue of cargo and ship after a major accident. The captain or owner of the ship will declare General Average when cargo, equipment, or funds must be voluntarily sacrificed to save the ship from peril in the event of an emergency.
6. Contingent Coverage
If your counterpart’s insurance is inadequate or does not cover certain types of damage or loss, or they simply forget to arrange cargo insurance, arranging cargo insurance yourself can act as secondary coverage, filling in the gaps to ensure your goods and your financial exposure are protected.
Read More: Top Benefits of Cargo Insurance for Your Business
Types of Cargo Insurance Coverage
Different levels of coverage are available for cargo insurance. Selecting the appropriate type of coverage is crucial, as it should align with the specific needs of the shipment.
The coverage you choose will depend on the value of your goods, the risks involved, and the type of transportation.
The primary types include:
1. All Risk Coverage
This is the most comprehensive form of cargo insurance, covering many potential risks, including almost all potential perils that could lead to loss or damage during transit unless specifically excluded in the policy. It is written as Institute Cargo Clause (A), ICC (A), ICC (Air), or ICC (All Risk).
2. Named Perils Coverage
This type of coverage is more limited, as it only covers risks explicitly listed in the policy, such as fire, theft, and certain weather events.
It is often more affordable but provides less protection compared to all-risk coverage. Such insurance requires a comprehensive understanding of the risks most likely to impact the shipment. Written as Institute Cargo Clause (B), ICC (B), and the more limited terms of Institute Cargo Clause (C), ICC (C)
3. General Average
This principle is predominantly applied in marine insurance, where all parties in a sea venture proportionally share losses resulting from voluntary sacrifices to save the voyage during emergencies.
If a general average loss occurs, the cost will be divided among the cargo owners (shipper/consignee), the shipping line, and others involved.
How Does Cargo Insurance Work?
Cargo insurance works by providing a safety net for your goods during transit. Here is how it typically works:
1. Purchasing Cargo Insurance
When shipping goods, cargo insurance can be purchased directly from an insurance company or a logistics provider. The premium typically depends on factors such as:
- Declared Value (Value of the Goods + Freight Costs)
- Shipping route
- Commodity type
- Type of coverage selected
Previously, getting quotes or arranging cover was difficult. Azure Risk has made this process significantly easier through our digital cargo insurance platform and expertise in arranging policy wording.
2. Claim Process
You must file a claim with the insurance provider if your goods are damaged, lost, or stolen. This typically involves submitting documentation such as:
- Claim form
- The bill of lading
- Proof of value
- Evidence of the damage or loss
- Inventory list
Once your claim is processed, the insurer will reimburse you for the loss based on the policy terms, if valid.
Azure Risk has smoothed out this process through “fast-track” agreements with our insurers for smaller claims and support from our specialist broker to assist in the claims process and where there are coverage concerns.
3. Exclusions
It is important to be aware of policy exclusions. For instance, cargo insurance may not cover damages resulting from improper packaging, delay, neglect by the shipper, or natural deterioration of certain goods (e.g., perishable items). Understanding these exclusions helps in taking preventive measures to mitigate uncovered risks.
Also Read: Cargo War Coverage: What is It and Why Does It Matter?
Cargo insurance is essential for anyone involved in shipping goods, whether you are a business owner, a logistics manager, or an individual sending valuable items. For those seeking expert guidance and tailored insurance solutions, Azure Risk is ready to assess you.
We are a distinguished business insurance broker specializing in providing comprehensive coverage options to meet your diverse needs. Our expertise ensures that your cargo is protected, allowing you to navigate the complexities of global trade confidently. Do not leave your goods unprotected; consult with us today to ensure you are covered by the risks ahead!
