With brokers hustling to meet clients’ cargo insurance demands, they can easily overlook potential risks and liability. Here are four questions brokers must ask to protect their clients’ interests.
As companies expand their manufacturing and distribution operations to the global marketplace, delivering goods to customers safely and promptly can be complex and challenging. With brokers hustling to meet their clients' insurance demands, they can easily overlook potential risks and liability. Here are four questions brokers must ask to protect their clients' interests:
1) What are your clients transporting? This may seem obvious, but it's the first question to ask for a reason. It's critical that brokers understand what a client is transporting from one destination to another. Is it perishable? Oversized? Volatile?
Minute details are important and vague or generalized descriptions can result in clients exposing themselves to uninsured losses. Having a thorough knowledge of what's being transported will help ensure clients' interests are protected in the event goods do not arrive on time, in good condition or without incident.
2) How is the cargo being packed? How cargo is packed is significant when determining potential exposure to risk. For example, whether goods are containerized and where cargo is stowed on a ship may be relevant, as most marine policies sublimit non-containerized shipments stowed on deck.
From a perspective of loss prevention and liability coverage, insureds must confirm that the packaging is adequate for the voyage. If it isn't, some insurance policies contain packaging warranties or conditions that would void coverage unless new or compliant packaging is used.
3) Will the goods be traveling through high-risk areas? Brokers should ensure they understand where in the world goods are being shipped. Many insurance policies exclude coverage for overland conveyances outside the United States. If the worst happens in a designated high-risk area (HRA), insureds may incur hidden, uninsurable costs.
If the goods will be transported through an HRA, part of an insured's due diligence is to check if a carrier is prepared to travel through these unstable regions. Does the logistics carrier have contingency plans for unforeseen delays in transit or technology to keep them apprised of the shipment's location at all times? What is the carrier's strategy to prevent or mitigate an attempted hijacking?
Loss of property leads to hidden costs that are not indemnified by the insurance policy, including:
- Loss of intellectual property.
- Goods sold on the black market.
- Business interruption if key components or parts are stolen in transit, resulting in insufficient inventory for production.
- Loss of revenue if the insurance policy's valuation of goods is less than the selling price.
- No coverage, as some policies do not cover inland conveyances outside the U.S. and Canada.
4) Do you have the proper comprehensive cargo insurance? In general, obtaining a standalone cargo policy provides insureds with the broadest coverage. Standalone cargo policies:
- Provide coverage for incoming materials from suppliers, intercompany shipments, and outbound goods to storage and distribution locations or customers, whether an insured ships goods via its own fleet or uses a variety of common carriers.
- Offer more coverage at a lower rate than freight forwarders, who charge per transaction with no discount for volume, have very limited coverage, and may impose a time limit for reporting claims.
- Pay the covered loss and seek recovery against parties responsible for the loss, whereas trucker's insurance typically only offers $100,000 limited liability coverage, protecting the trucker alone and requiring proof that the trucker was negligent.
- Provide coverage and support for navigating complex claims processes when importing goods from overseas vendors.
- Insure against a general average claim and limit exposure to costly expenses for attorney's fees, posting of bonds and delays in the release of cargo.
While there's no such thing as a risk-free environment in the cargo industry, brokers can partner with experienced insurance professionals to gather more knowledge about the hidden and not-so-hidden liabilities that exist. By asking the right questions and arranging the best coverage, brokers can successfully protect their clients' interests and prevent uninsured losses.