Selection of Cargo Insurance

20160120224 潘明欣

 

In international trade, cargo maybe exposed to many unexpected risks and suffer losses in the course of transit. It is quite rife these days for every single imports and exports to arrange for cargo insurance before transportation. In practise, how to select types of cargo insurance flexibly and accordingly is the core of avoiding losses.

 

To begin with, there are various kinds of international cargo transportation insurance, including not only main risks and additional risks, but also additional risks including General Additional Risks and Special Additional Risks. Multiple choices of insurance coverage will boost the sense of security, but the premium will also increase. Therefore, it seems more constructive to maintain a balance between insurance coverage and premium.

 

Next, All Risks is the most common used cargo insurance, the insurance applicant do not have to be entangled with what additional risks to choose, because its scope of liability includes F.P.A., W.A. and 11 General Additional Risks. Wool, cotton, silk, clothing and chemical fibers goods which will suffer losses considerably should be taken priority to insure All Risks as main risks. However, it is of noteworthiness that All risks is not incomparable.

 

Case 1: In November 2000 and December 2000, a food company exported 1050 bags almonds from K Company to Hamburg of Germany, insured against All Risks. The transportation route is from Tianjin Xingang to Hamburg, Germany. After the arrival of two shipments in January and February 2001, it was found that some of the goods contained aflatoxin exceeding the standard and the consignor was notified of the rejection.

 

Analysis: Peanuts, almonds or rice often contain aflatoxins. If this toxin exceeds the standard, the goods are refused to be imported, confiscated or forcibly changed for other purposes, resulting in losses. Based on the above, one can draw a conclusion that All risks excludes Aflatoxin Coverage then Aflatoxin Coverage shall be insured as a Special Additional Risk based on All Risks when exporting such goods.

 

Indeed, for some goods, it is unnecessary to insure All Risks. On the one hand, the wider the All Risks coverages are, the more it costs. On the other hand, taking full advantage of additional risks has more practical values.

 

Case 2: A company imports a batch of ethylene,CFR Xingang port, the buyer is responsible for insurance. What kind of insurance should be insured? Should the buyer insure All Risks?

 

Analysis: In this case, ethylene belongs to bulk chemical product, shipping by oil tanker. According to the distinct advantage of oil tanker, if we insure against All Risks, some coverages of the 11 General Additional Risks are superfluous. During the process of connecting pipeline to transport to shore tank, the gas may leak or contaminate. Thus, Leakage Coverage and Intermixture & Contamination Coverage should be insure as General Additional Risks and F.P.A. as main risks. In this way, not only can we focus on the targeted coverages, but also we save budget.

 

Furthermore, the key to insure general risks flexibly is to take the possible situation occurring in goods into full consideration.

 

Case3: A company exported a batch of steel (naked) to Central American countries and insured the insure W.A. for the transport. When the goods arrived at their destination, five pieces were found shortage. Then the consignee claimed compensation from the insurance company, but he was told that Shortage Coverage is not covered by W.A..

 

Analysis: Steel can be loaded nude. Yet, it can be stolen on board. In this regard, the problem can be tackled if insure W.A. plus Theft, Pilferage & Non-delivery Coverage. When the insurance company settles the claim, it must first confirm the causes of the loss, and the loss caused only within the scope of the liability of the insured type will be compensated. Hence, the choice of additional risk should be considered according to the risk factors. For example, glass products, ceramic commodities or handicrafts, etc., will cause losses as a result of breakage, which can be insured on the basis of F.P.A. or W.A.

 

In sum, prevention is better than cure. It is an optimal alternative to make careful analysis on the potential risks before insure.

 

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