1. Why should I purchase ocean cargo insurance?
The simple answer is to reduce your exposure to financial loss. If you're an exporter who has not been paid for the goods at the time of shipment, or an importer who has paid for all or part of the goods prior to receiving them, you run the risk of suffering a financial loss if the goods are lost or damaged during transit.
Additionally, you may be required to post a bond and/or cash deposit in order to obtain release of your cargo following a general average even though there was no loss or damage to your goods. By purchasing insurance,your insurance company assumes the responsibility and can usually expedite the release of your cargo.
Lastly, your sales contract may obligate you to provide ocean cargo insurance to protect the buyer's interest or their bank's interest. This is especially true when selling goods CIP or CIF. Failure to do so can not only subject you to financial loss if there is loss or damage to the goods, but non-compliance with the terms of your contract with the buyer can lead to loss of sales and legal problems.
2. What is general average and why would I incur costs if my goods are not damaged?
General Average is an internationally accepted principle of equity dating back to ancient times. Essentially, if one or more interests involved in a maritime adventure voluntarily sacrifices all or part of their goods to save all interests from an impending peril or loss, the interests saved will reimburse the interest suffering the loss so that each shares the loss equally. A classic example used to illustrate this principle is that of a vessel which runs aground in a storm and is threatened with loss of the entire vessel and its cargo unless the vessel can be refloated. Efforts to refloat the vessel--such as the jettison of cargo to lighten the vessel; or expenses paid to a salvor to pull the vessel off the grounding point--would be shared by the vessel and all cargo interests.
3. I understand the need for insurance, but why can't I just rely on: the carrier to reimburse me for loss or damage to my goods and not incur the additional costs of insurance, the buyer's or seller's insurance, or self-insurance?
One, the carrier would not be responsible for your portion of general average. Secondly, the carrier is only responsible for loss or damage when it is due to their own negligence while the goods are in their care, custody or control, plus carriers are exempt from certain causes of loss or damage (up to 17 under certain international conventions). And lastly, the monetary liability of carriers is often very limited. Relying on the buyer's or seller's insurance may be a viable option, but you must be satisfied that the insurance has in fact been effected and that the insuring terms, valuation, and limits provided by each's insurer on each shipment are adequate to meet your needs. Arranging your own insurance once under an Open Policy to fit your specific requirements for all your shipments would be much more simple and cost effective. Self-insurance may also be a viable option provided adequate funding is reserved to cover catastrophic losses and that you possess the resources and expertise to pursue recoveries from parties responsible for loss or damage, mitigate loss or damage worldwide when it does occur, expedite the release of cargo following a general average or other mishap during transit, investigate causes of loss and recommend changes in packaging, shipping and/or handling practices-all services provided by insurance companies when you purchase an ocean cargo insurance policy.
d) The insurance provided by my freight forwarder?
Letting your freight forwarder arrange your ocean cargo insurance may in fact be to your best advantage. This is especially true when you have infrequent shipments and want to avoid minimum premiums usually required by insurance companies for issuing open policies, or when providing insurance on individual shipments as they occur. Some important considerations are: the financial strength of the insurance company with which the forwarder places the insurance; the claim and loss control services available; the adequacy of coverage to fit your specific needs; and that the cost is based upon your cargo's exposure to loss and not the loss experience of all shippers insured by your forwarder's insurer.
4. How do I select an ocean cargo insurer?
Your insurance agent or broker is usually the best source of information to help you choose among the many insurers offering ocean cargo insurance. Trade organizations or people you know involved in importing or exporting are also excellent sources. Important considerations in selecting an insurer are:
a) The company's financial health and claims paying ability. Firms such as A.M. Best, Moody's and Standard & Poor's provide ratings of insurance companies;
b) The company's reputation for fair and prompt settlement of claims and their aggressive pursuit of subrogation;
c) A full range of loss control and risk management capabilities;
d) A full range of automatic coverages to meet your basic requirements and the knowledge and expertise to recognize and craft specific coverages for your unique needs, all at a reasonable cost to you;
e) Worldwide underwriting, claims, subrogation and loss control capabilities; and
f) A willingness to listen and positively respond to your concerns.
5. Where does Chubb rank in terms of ocean cargo written premium in the United States? Worldwide?
There are no published records in the United States of ocean cargo premium by individual companies. While premium size may be an indication of the quality of a company and the quality of the customers it attracts, it should not be the sole criteria in selecting an insurer. The items mentioned in the answer to the question "How do I select an ocean cargo insurer?" should be the principal considerations.
6. How do I obtain ocean cargo insurance?
Once you determine you may be responsible for insuring shipments, or decide that you want to arrange your own insurance you should first discuss your needs with your existing insurance agent or broker. They will assist you in identifying your exposure to loss, compile specifications to be presented to insurance companies for a quotation and help you to evaluate the insurer best suited to your specific needs. If you will only be responsible for insuring a few shipments annually, you may want to place your insurance through the freight forwarder handling your shipments. Again, your insurance agent or broker can assist you in making that decision.
7. Must I place insurance through an insurance agent or broker?
Most states in the United States, and most other countries, require insurance to be placed through properly licensed agents or brokers. Regulations aside, it makes sense to take advantage of the experience and knowledge of these insurance professionals.
8. Do I need to purchase insurance only when I'm responsible for providing insurance?
Responsible infers a legal obligation and if in fact you have agreed with your buyer or seller to provide insurance, you should do so. Responsible, however, also means protecting your firm from exposure to financial loss. Therefore, even though you may not have a legal obligation to your buyer or seller to effect insurance on shipments to or from them, you may have a financial responsibility to your own firm to do so.
9. Don't terms of sale dictate who is responsible for providing insurance? For example, I sell FOB vessel. Isn't the buyer responsible for insurance during the voyage?
No, the buyer is not responsible for providing insurance under FOB vessel terms. In fact, the buyer is not responsible for providing insurance under any of the 13 recognized INCOTERMS. Only two INCOTERMS (CIP and CIF) stipulate an obligation to provide insurance and that obligation is placed upon the seller.
10. What are INCOTERMS?
INCOTERMS are a set of internationally recognized trade terms published by the International Chamber of Commerce which define certain of the obligations and responsibilities of the seller and buyer to each other on goods moving in international trade.
11. What affect do INCOTERMS have on my decision to purchase ocean cargo insurance?
If you sell goods on either CIP or CIF terms, you are obligated to provide insurance for the benefit of your buyer. Additionally, all of the INCOTERMS assign the responsibility for loss or damage to the goods during transit to either the seller, the buyer or both for a portion or all of the transit. If you are responsible for loss or damage to the goods and have a financial interest in them, you would want to purchase insurance.
Ocean cargo insurers use INCOTERMS to determine the extent of your insurable interest in each shipment. In general, the portion of transit during which you are responsible for loss or damage to the goods represents the extent of your insurable interest. Basic ocean cargo insurance policies are designed to insure only those shipments on which you bear the responsibility for loss or damage during the "main carriage" portion of international transit and only while your responsibility for loss or damage exists. Essentially, "main carriage" is the period of time starting from when the goods are delivered in the country of shipment to the carrier who is responsible for delivery of thegoods at a place of destination and continuing until the goods are actually delivered to that place.
Therefore, the terms of sale you agree upon with your buyer or seller dictates when you are responsible for loss or damage. You would only need to purchase ocean cargo insurance if you are responsible for loss or damage during the "main carriage" phase of transit; or if you have agreed to provide ocean cargo insurance under CIP or CIF terms or other provision of the contract of sale.
12. If I am not selling of CIP or CIF terms, and am not responsible for loss or damage during the "main carriage" phase of transit under the terms I do sell on, do I still need to purchase insurance?
If you have not been paid for the goods at the time of shipment and the terms you sell on make you responsible for loss or damage during any phase of transit you would be well advised to insure this exposure to financial loss. For example, you would be responsible for loss or damage until you deliver the goods to the place agreed under FCA, FAS, FOB or CFR terms. You can usually arrange insurance for these exposures under a domestic transit policy or the transit provisions of your property policy.
Alternatively, if you do have other shipments which are insured under an ocean cargo policy, you can usually add coverage for these shipments.
Additionally, if you have not been paid for the goods you run the risk of non-payment if there is loss or damage the buyer is responsible for. In these instances, you may wish to add contingent coverage to your ocean cargo policy which would respond if the buyer or his insurer does not.
You should review your actual insurance needs with your insurance agent or broker and your insurer.
13. If I'm a buyer and buy goods on terms of sale which include ocean cargo insurance, do I have a need to purchase insurance?
It depends on the extent of the insurance provided by the seller, or other party, and whether or not you have already paid for all or part of the goods. Some questions to ask of yourself: Does the other insurance cover from the original place of origin until arrival at my premises? If not, you may need insurance to fill in the gaps. Are you satisfied with the coverage--insuring terms, valuation and limits--provided by the other party, and the ability of that insurer to settle claims fairly and promptly and to adjust claims directly with you at destination? If not, you may wish to obtain contingency insurances such as guarantee of collectability, difference in conditions, increased value or difference of limit.
You should review your actual insurance needs with your insurance agent or broker and your insurer.
14. How is the cost of ocean cargo insurance determined?
There are a number of factors insurers look at in determining the cost of insurance. Of principal importance are: The susceptibility to damage of the goods being shipped; the country risks of origin and destination; the type of packaging being used; the types of conveyance used; the annual and per shipment values; the type of valuation and limits provided; the actual insuring terms and deductible; the account's past experience; and the insurers own experience with similar accounts.
15. How do I determine how much insurance I should purchase?
There are two major considerations when determining how much insurance to purchase. First, how do you want to value goods? Usually, cargo policies value goods at the invoice cost, plus freight plus an additional percentage (referred to as an "advance") of the total of those amounts (usually 10% - 20%) to account for additional expenses and charges which may be incurred during shipment but which are unknown at the time of shipment. Second, what is the maximum amount (based on the valuation formula) you plan to ship on any one conveyance? This is the usual policy limit you will require.
16. If I insure for only CIF plus a percentage, how do I insure my profit?
If you're an exporter, your profit should already be included in the basic invoice cost of your goods. Importers should select a valuation advance which adequately reflects a portion of their anticipated profit.
17. Can I value my shipments at something other than CIF plus an advance?
Insurers are usually agreeable to providing valuations best suited to the requirements of the insured. For example,mporters may want to insure goods at their eventual selling price, or commodity brokers may want to insure at the market value of their commodity at the time of expected resale, or exporters selling through distributors may want to insure for the distributors selling price. Additionally, importers may want to purchase additional coverage for duty and/or taxes assessed on imported goods. Discussing your specific requirements with your insurance agent or broker and insurer will allow you to review various options available to you.
18. When I purchase an open ocean cargo policy, are all my shipments insured warehouse to warehouse?
Not necessarily. First, only shipments you are responsible for insuring, or for which you are responsible for loss or damage during the "main carriage" phase of transit are automatically insured by a basic open policy (unless otherwise excluded). Secondly, although your open policy may contain a warehouse to warehouse clause, coverage actually attaches on each shipment at the time your responsibility for loss or damage attaches and stops once that responsibility ceases. Of course if you've agreed to provide insurance under your contract of sale on a warehouse to warehouse basis, most open policies will provide that coverage.
For example, if you purchase goods FOB vessel port of loading, insurance under your open policy starts when the goods have been loaded onto the overseas vessel at the port of loading. Loss which may occur prior to that time would be for the seller's account. If you sell goods CIF port of destination, your insurance will start when the goods leave your warehouse, but will stop once the goods reach the port of destination, not the final warehouse of the buyer. It is for these reasons you should consider the range of optional coverages usually offered by insurers which will protect your interest on a primary or contingent basis when the terms of your open policy do not apply.
19. If I have worldwide coverage under my open policy, aren't all my shipments covered automatically if I'm responsible for providing insurance, or if I am responsible for loss or damage during the "main carriage" phase of transit?
Your policy would not cover shipments to or from countries which you are legally prohibited from shipping to or from. Also, certain countries require that imports or exports be insured in local insurance markets. Lastly, most ocean cargo policies do not automatically insure purely domestic shipments.
In addition, all of your shipments may not be covered automatically because of restrictions in the policy pertaining to the types of goods covered or the conveyances used.
20. Can I insure domestic overland shipments under my ocean cargo policy?
Depending upon your specific needs, most insurers will extend their ocean cargo policies to include domestic shipments; provided there are no state insurance regulations prohibiting them from doing so. In the latter instances, insurers can usually arrange a companion domestic transit policy.
21. Can I insure foreign transit exposures under my ocean cargo policy?
Again, most major ocean cargo insurers will extend their ocean cargo policies to include foreign transit exposures; whether by overland conveyances, watercraft or by air, and whether domestic or international; provided there are no legal restrictions imposed by the countries being shipped to or from. In the latter instances, you will want to seek an insurer who has a worldwide network of branch offices or correspondents properly licensed to insure these exposures if required by local insurance regulations.
22. Does Chubb have the capability to provide domestic transit and foreign transit coverages on a worldwide basis on both an admitted and non-admitted basis?
Yes, Chubb has branch offices or correspondents in over 90 countries which give us the ability to service our insureds on a global basis.
23. I'm an importer and must periodically store my goods temporarily before I can take delivery of them. Does my ocean cargo policy provide coverage automatically for this temporary storage?
Probably not. Ocean cargo policies are designed to cover goods while in transit, including during customary delays or interruptions in transit beyond the control of the insured or their assignee. Coverage for other interruptions in transit must usually be specifically agreed to and added to the basic policy. Anytime you become aware of an interruption in transit, you should bring the situation to the attention of your insurer to be certain adequate coverages in effect.
24. I usually send my goods to an export consolidator to consolidate them into overseas containers with cargo of other. This saves me some freight costs. Does my ocean cargo policy provide automatic coverage during transit to the consolidator, while there and while being stuffed into the container?
Whether or not you have coverage will depend on the actual terms of your policy. The situation you describe is an intentional interruption in transit which usually voids the warehouse to warehouse provisions of an ocean cargo policy. You should review the way you make shipments with your insurance agent or broker and insurer to be certain you have the appropriate coverage; usually in the form of a consolidation provision in the instance you describe.
25. I ship goods break bulk but I understand the steamship company consolidates my goods into containers with goods of others. Do I need special coverage for this exposure?
Probably not. So long as neither you nor your assignee are specifically requesting that the steamship company arrange this consolidation, this would be considered a normal interruption in transit usually covered by a basic ocean cargo policy. To be on the safe side, you may want to discuss this situation with your insurance agent or broker and insurer.