What is Cargo Insurance Coverage?

Cargo insurance coverage protects goods from loss or damage while they are being transported by land, sea, or air. It provides businesses with a safety net, offering financial compensation for losses caused by accidents, theft, natural disasters, or other unforeseen events. 

Cargo insurance is especially important for companies engaged in international trade. As the goods go through multiple modes of transport and diverse environments, they face increased risks. Proper coverage allows them to maintain supply chain integrity and meet delivery commitments. 

Importance of cargo insurance coverage

Cargo insurance coverage offers businesses a sense of security that their goods can be moved across borders while being shielded from potential losses. Here are a few reasons why securing cargo insurance is important for a business: 

Risk mitigation

Transporting goods always involves risks, from accidents to adverse weather conditions. Cargo insurance mitigates these risks by offering a level of financial protection. Without it, businesses could suffer significant losses, especially while transporting high-value goods.

Supply chain security

A disruption in the supply chain, such as the loss of critical goods in transit, can have a domino effect on business operations. Cargo insurance ensures continuity by covering financial losses, allowing businesses to recover quickly and maintain operations.

Legal and contractual compliance

In many international transactions, cargo insurance is not just recommended but required. For example, Incoterms like CIF and CIP mandate shippers to secure insurance in their contracts. 

Similarly, some countries require proof of cargo insurance as part of customs clearance procedures, particularly for high-value or sensitive goods. In certain jurisdictions, businesses shipping to high-risk regions may be mandated to secure specific types of insurance.

Peace of mind

Knowing that goods are insured offers reassurance to all parties involved. Shippers, consignees, and logistics providers can focus on their operations without constantly worrying about the consequences of potential losses or damage to the goods.

Who needs cargo insurance?

The following parties may require cargo insurance:

• Exporters and importers: With goods crossing borders and oceans, the risks involved are much higher. Companies engaged in international trade must secure cargo insurance to keep their supply chains running smoothly.

• Manufacturers and suppliers: Shipping to distributors and retailers requires cargo insurance to safeguard products during transit and avoid supply chain disruptions.

• Freight forwarders and logistics companies: As these entities are responsible for transporting goods on behalf of others, they often secure cargo insurance to protect clients and their own liability in case of transit-related issues.

• E-commerce businesses: Online sellers frequently ship goods across regions. Cargo insurance helps them minimize losses and maintain customer trust.

Types of cargo insurance

Common types of cargo insurance include:

• Land cargo insurance: Covers goods transported over land against risks such as theft, damage, or accidents during transit by truck, train, or other ground vehicles.

• Marine cargo insurance: Offers coverage for cargo shipped via sea or inland waterways, safeguarding against risks like water damage, piracy, or breakage.

• Air cargo insurance: Covers risks to goods transported by air, including damage or loss caused by turbulence, mishandling, theft, and other unforeseen events.

• Open policy (floating policy): A long-term policy that covers multiple shipments over a set period. It is beneficial for businesses that ship regularly, eliminating the need for securing separate insurance for each shipment.

• Specific voyage policy: A type of marine cargo insurance that covers a single shipment for a particular voyage, often used for high-value or unique consignments.

• All-risk coverage: A comprehensive policy that covers all possible risks to the cargo, including accidental damage, theft, and natural disasters, unless explicitly excluded in the policy terms.

• Named perils coverage: Offers coverage for only the risks named in the policy, such as theft, explosion, or collision, leaving other types of damage or loss outside the coverage scope.

Coverage details

Cargo insurance provides comprehensive coverage against a wide range of risks, the specifics of which can vary depending on the policy type and nature of the goods. 

Perils covered

Cargo insurance typically covers risks like damage due to accidents or improper handling, theft, and natural disasters. All-risk marine cargo insurance may also cover general average costs incurred during emergencies, such as jettisoning cargo to prevent a vessel from sinking. 

Exclusions

Not all scenarios are covered by cargo insurance. For example, losses due to improper packaging, inherent defects in the goods, or extreme circumstances like terrorism and war are often excluded.

Geographical limits

Some policies define geographical boundaries. For instance, a policy may cover shipments within a specific region or between designated countries but exclude certain high-risk areas or countries with poor infrastructure.

Duration of coverage

The duration of cargo insurance coverage depends on the type of policy applied. For example, in a warehouse-to-warehouse policy, goods are insured from the moment they leave the origin warehouse until they reach the buyer’s warehouse. 

How cargo insurance works

The process involves three basic steps:

• Assessment of value: The value of the cargo is determined based on its market worth and additional costs, such as shipping, handling, or customs fees.

• Premium calculation: The insurance premium cost factors in the cargo’s value, destination, mode of transport, and risk level associated with the shipment.

• Claim process: If loss or damage occurs, the cargo owner files a claim with the insurer. They provide the necessary paperwork, such as the damage report and BoL. The insurer then evaluates the claim and, if valid, reimburses the owner based on the policy terms.