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Are you an exporter or importer looking to ensure the safe arrival of your products, without incurring financial losses for lost or damaged goods? Then freight insurance should be top of mind.
Freight insurance offers coverage against property damage and loss while in transit, making sure that you don't bear the brunt of any unexpected interruptions along the way.
In this post, we'll explore what freight insurance covers, how it works, and things to consider when purchasing coverage — all essential knowledge for businesses involved with importing and exporting.
Get ready to learn more about freight insurance so that you can protect yourself and keep operations running smoothly.
What is Freight Insurance?
Freight insurance is a type of coverage that protects the goods being transported from different types of risks.
Whether you're shipping items locally or internationally, freight insurance provides financial protection in the event of unfortunate incidents such as theft, damage, or loss of cargo. This type of insurance can help prevent businesses or individuals from incurring significant financial losses due to unforeseen circumstances during transit.
Why You Should Cover Your Cargo
Many factors can affect the safety of your shipment, from theft, fire, and natural disasters, to damages caused by accidents. Investing in cargo insurance may seem like an additional cost, but in reality, it is a small price to pay compared to the consequences of a lost or damaged shipment.
Insuring your cargo not only gives you peace of mind but also shows your clients that you're willing to go the extra mile to ensure their goods are well protected.
According to Allianz Global Corporate & Specialty report on industry losses, there were more than 200,000 insurance claims worth approximately €9.2bn in value. Here are some of the top causes:
So protect your cargo, your wallet, and yourself by covering your load on your next shipping.
Types of Freight Insurance
Different modes of transportation present unique risks and challenges and require specific types of cargo insurance.
Here's a brief overview of three major types of cargo insurance:
- Land Cargo Insurance — this type of insurance provides coverage for goods transported over land, protecting against risks such as road accidents, theft, and natural disasters.
- Marine Cargo Insurance — designed to protect goods transported by sea, marine cargo insurance covers risks such as damage from rough handling, collision, sinking of the ship, and piracy.
- Air Cargo Insurance — this insurance covers goods transported by air, safeguarding against risks including aircraft crashes, damage during loading/unloading, extreme weather conditions, and loss during transit.
What Does Shipping Insurance Cover?
When it comes to shipping, unexpected mishaps can occur. That's where shipping insurance comes into play. But, what exactly does shipping insurance cover? Well, it depends on the policy you select…
#1 All-Risk Coverage
All-risk coverage is the most comprehensive type of freight insurance available. As the name suggests, this policy covers all types of loss, damage, or theft that may occur during transportation. It is a broad coverage policy that is perfect for shippers who transport valuable and fragile goods.
All-risk coverage also covers damages that may result from poor packaging or handling during transportation. However, the policy excludes damages and losses due to undisclosed factors such as natural disasters, war, or riots.
#2 Named Perils Coverage
Named perils coverage is a specific type of insurance policy that provides financial protection for shippers from damages or losses caused by specific perils. This means that the policy covers only the risks that are explicitly mentioned in the policy.
Common named perils include theft, accidents, and damage. This type of insurance is best suited for shippers who transport goods that are less valuable.
#3 Total Loss Coverage
Total loss coverage is a type of freight insurance policy that protects shippers from total loss or damage to their goods. It provides compensation in the event of damage or loss that equals the full value of the goods.
This type of coverage is preferred by businesses that transport high-value goods such as jewellery, antiques, or electronics.
#4 General Average Coverage
General average coverage is a unique type of freight insurance policy that provides protection for shippers in the event of partial losses.
This type of coverage is designed to compensate shippers for the costs of damages or losses that may be incurred as a result of another party's actions.
How to Get Cargo Insurance
Getting cargo insurance involves a few key steps to ensure you're adequately covered for the type of goods you're shipping and the risks involved.
Here's a step-by-step guide:
- Identify Your Needs: Before anything else, identify what type of cargo insurance you need based on the mode of transportation (land, sea, or air) and the kind of goods you're shipping.
- Understand the Risks: Evaluate the potential risks associated with your cargo. This could range from damage due to handling, theft, natural disasters, or even geopolitical risks if you're shipping internationally.
- Research Insurance Providers: Not all insurance providers offer the same coverage. Some specialize in certain types of cargo or modes of transport. Do your research to find providers that cater to your specific needs.
- Compare Quotes: Once you've shortlisted a few providers, get quotes from each of them. The cost of insurance will vary based on the value of your goods, the risks involved, and the insurance provider's policies.
- Review Policies Carefully: Before making a decision, carefully review what each policy covers and what it doesn't. Make sure it aligns with your identified needs and risks.
- Purchase Insurance: Once you've reviewed and compared policies, proceed to purchase the one that best fits your needs. Ensure you understand the terms and conditions, including claim procedures.
- Documentation: After purchasing the policy, make sure to properly document all related paperwork. This will prove essential when filing a claim.
Remember, the goal of cargo insurance is to mitigate risks and protect your financial interests. Therefore, it's crucial to take time to understand your unique needs and choose a policy that provides adequate coverage.
Cost of Freight Insurance
Freight insurance is a necessary expense for any business that deals with transporting goods. While it can add to the cost of shipping, it is crucial in protecting your investment and ensuring that your goods arrive safely and intact. The cost of freight insurance will depend on several factors…
Factors that Determine the Cost of Freight Insurance
The cost of freight insurance can vary widely depending on a number of factors. Here are some key determinants:
- Value of Goods: The higher the value of the goods being transported, the higher the insurance premium tends to be. This is because the potential financial loss for the insurer is greater if these goods are damaged or lost.
- Type of Goods: Certain types of goods may carry higher risks and thus require higher premiums. For example, fragile items, perishables, or high-demand goods (which could be more likely targets for theft) often cost more to insure.
- Shipping Route and Destination: If your cargo is being shipped to or through areas that are considered high-risk due to factors like political instability, high crime rates, or severe weather conditions, your insurance costs may be higher.
- Mode of Transportation: Different modes of transportation come with different risks. For instance, sea freight might be exposed to risks such as piracy or severe weather, while air freight could be susceptible to turbulence or other flight-related issues.
- Coverage Type: The extent of the coverage you choose will also affect the cost. Comprehensive policies that cover a wide range of potential issues will generally cost more than basic policies that only cover specific, named risks.
- Claim History: Just like with other types of insurance, if you've made several claims in the past, insurers may see you as a higher risk and charge you more.
- Risk Management Measures: If you have robust risk management measures in place (like high-quality packaging, secure storage facilities, reliable transport partners, etc.), insurers may see you as a lower risk and offer lower premiums.
Remember, each insurer may weigh these factors differently, so it's important to shop around and compare quotes from different providers.
Cargo Insurance Rates
Cargo insurance rates are typically priced as a percentage of the insured value of the cargo. Most insurance companies charge between 0.15% to 2.5% of the insured value as the premium. However, the actual premium will depend on the specific risk factors involved in your shipment.
Let’s consider an example of obtaining freight insurance with the Cost, Insurance, and Freight (CIF) Incoterm.
Under CIF terms, the seller is responsible for arranging and paying for the cost of the goods, the cargo insurance, and the freight charges to deliver the goods to a named port of destination. The risk of loss or damage to the goods is transferred from the seller to the buyer once the goods have been loaded onboard the ship at the port of departure.
For instance, let's say a manufacturer in Germany is selling machinery to a buyer in the United States. They agree on CIF terms. The seller will be responsible for manufacturing the machinery, arranging and paying for cargo insurance, and shipping the machinery by sea to the designated port in the United States.
The insurance premium rate would typically be calculated based on the value of the goods, the mode of transport, and the risks associated with the route. For example, if the machinery is worth $100,000 and the insurance rate is 0.5%, the seller would pay $500 for cargo insurance.
Once the machinery is loaded onto the ship in Germany, the risk of loss or damage transfers to the buyer. If the machinery is damaged during transit, the buyer could file a claim with the insurance company to recover the loss.
Keep in mind that under CIF terms, the seller is only required to obtain minimum insurance coverage. If the buyer wants more comprehensive coverage, they should arrange this separately.
Secure Your Cargo, Secure Your Business
In today's freight industry, having a secure and comprehensive freight insurance plan is an essential tool for any business since accidents can happen anytime
Sure, the costs may be cumbersome now, but allocating even just a small fraction of your company's budget towards insurance will save you from inestimable losses and expended stress in the long run.
Freight insurance is not only about protecting yourself and your businesses; it also means you are being a responsible partner with all involved stakeholders from providers to customers alike.
With extensive coverage comes peace of mind - for yourself, your employees, and all those involved in the shipping process.
So why take the risk? Get protected with freight insurance today: because covering your bases is invaluable.