Trade Risk Guaranty Presents WHAT IS CARGO INSURANCE? The Basics WHAT IS CARGO INSURANCE? | THE BASICS TABLE OF CONTENTS History of Marine Cargo Insurance 3 What is Marine Cargo Insurance? 5 Types of Marine Cargo Insurance 7 All Risk – A Clauses 8 Named Perils – B/C Clauses 10 Types of Marine Cargo Insurance Premium 11 Adjustments Open (Rated) 12 Flat Annual 13 Types of Marine Cargo Insurance Risk 14 Management Options Shipment-by-Shipment 15 CIF 16 Annual 17 Carrier Limit of Liability 18 General Average 19 About Trade Risk Guaranty 21 2 HISTORY OF MARINE CARGO INSURANCE 3000 B.C. Marine cargo insurance has existed in various forms dating back to 3000 BC. The earliest record of cargo insurance is referred to as "bottomry." Bottomry is the advance of money on the security of a vessel to protect against the loss of cargo and was usually set at 20 percent. Bottomry protected traders from debt in the event that cargo was lost. 500 A.D. A marine insurance term that can be traced back to ancient times is General Average. Greek, Phoenician, and Indian traders said, "Let that which has been jettisoned on behalf of all be restored by the contribution of all." and "A collection of the contributions for jettison shall be made when the ship is saved." Justinian, the Eastern Roman emperor, included the following regarding General Average: "When a ship is sunk or wrecked, whatever of his property each owner may have saved, he shall keep it for himself." This concept was widely used throughout the early civilizations. 1000 A.D. The next significant development in marine insurance took place in Europe around the 11th and 12th centuries. Danish navigators began forming guilds whose role was to reimburse its members against losses at sea. Around the same time, the first use of premiums in marine insurance occurred. Lombardy, Venice, and Florence were the centers of Mediterranean trade where written records began to emerge. 1384 A.D. The first recorded marine policy issued was on a vessel named Santa Clara. It was dated April 24, 1384, and covered four bales of textiles being shipped from Pisa to Savona. The Lombards brought these basic concepts of marine insurance to northern Europe and England in the 13th Century. 3 HISTORY OF MARINE CARGO INSURANCE 1688 A.D. By the 17th Century, London and the Lloyd's of London Association had developed into a leading center for marine insurance. Lloyd's of London traces its roots to a coffee shop founded by Samuel Lloyd in 1688. This coffee shop was favored as a meeting place for insurance business transactions among underwriters and merchants. By 1734, the official list of vessels and values known as the "Lloyd's List" was first published. 1769 A.D. In 1769, underwriters took their informal arrangement and founded the organization we know today as Lloyd's of London. Ten years later, the first standard policy wording was developed for use at Lloyd's. Lloyd's of London continues to serve as the leading shipping list in the marine insurance industry. It is still acknowledged as the most significant meeting place for underwriters and shippers to facilitate marine insurance business. 1906 A.D. In 1906, the British Parliament enacted the Marine Insurance Act. The Marine Insurance Act of 1906 was implemented to regulate marine insurance. This legislation continues to influence marine insurance policy wordings and conditions to this day. The Act applies to ship and cargo marine insurance as well as protection and indemnity insurance. The Marine Insurance Act of 1906 was written by Sir Mackenzie Dalzell Chalmers, who created the Sale of Goods Act 1893. The Marine Insurance Act of 1906 is highly influential. This Act governs not just English Law, but it also dominates marine insurance worldwide through its wholesale adoption by other jurisdictions. 4 WHAT IS MARINE CARGO INSURANCE? Marine cargo insurance covers the loss, damage, or theft of commodities while in transit between the point of origin and final destination. This is also known as shipping insurance or freight insurance. This insurance is one of the most essential branches of insurance and an indispensable aid to international trade. Marine cargo insurance is a type of property insurance that insures property while in transit against physical loss or damage arising from perils associated with the navigation of the sea, air, land, and/or inland waterways. Therefore, a marine cargo insurance policy may be written to include not only goods to be shipped via ocean but also goods to be shipped via air, truck, or rail, including international, domestic or inland transit, warehouse coverage, and more. Air Freight Warehouse Truck Ocean Rail Marine Cargo Insurance covers more than ocean shipments. 5 WHAT IS MARINE CARGO INSURANCE? Approximate amount of containers lost at sea each year The primary purpose of (not counting catastrophic events) marine cargo insurance is to protect companies from suffering lost revenue. 350 Since loss or damage to a shipment can ruin a company's bottom line, Approximate amount of purchasing additional containers lost at sea each year freight coverage can mean (counting catastrophic events) the difference between growing a company and shutting its doors. 675 Protecting business investments with Marine Cargo Insurance will help a The number of containers lost in a company move forward. catastrophic event can vary greatly from 50 to several hundred. Marine cargo insurance covers maritime perils, which can differ coverage-wise from policy to policy. Maritime perils are perils consequent on or incidental to the carriage of property by the sea. This includes sinking, stranding, collisions, fire, war perils, pirates, thieves, capture, jettison, washing overboard, and other similar perils designated by the policy. There are different types of marine cargo insurance coverage and policies for businesses to consider. Marine cargo policies are customizable to fit the needs of any company, and we will discuss the specifics of each kind. 6 WHAT IS CARGO INSURANCE? | THE BASICS TYPES OF MARINE CARGO INSURANCE COVERAGE There is a wide variety of marine cargo insurance coverage options available. Importers should be familiar with the two primary types that exist in order to decide what kind of coverage is right for them. The two main types of cargo insurance coverage an importer can purchase to protect their goods while in transit are All-Risk and Named Perils. If an importer does not purchase cargo insurance, they are only covered by carrier limit of liability. 7 ALL-RISK COVERAGE INSTITUTE CARGO CLAUSE A All-risk policies provide the broadest and most comprehensive coverage available. Rather than only covering certain situations, all-risk coverage will cover all physical loss or damage due to a fortuity which is chance or happenstance unless the cause of loss or damage is expressly excluded from the policy. All Risk coverage is an Institute Cargo Clause A. Trade Risk Guaranty aims to offer all-risk terms since it provides the most comprehensive coverage. Benefits of an annual all-risk cargo insurance policy include: While goods are in transit, an importer's maximum financial loss is limited to their deductible. Asset protection General Average guarantee Control over claims Customized coverage & pricing Local representation Automatic & continuous coverage It's cost-effective 8 ALL-RISK COVERAGE INSTITUTE CARGO CLAUSE A An all-risk policy will list any exclusions that are not covered, but coverage for certain exclusions can sometimes be added as an additional clause. The following are some standard exclusions for All-Risk Marine Insurance coverage: Inherent This refers to the deterioration of physical objects because of the fundamental instability of the Vice components of which they are made, as opposed to deterioration caused by external forces. For example, fruits and chemicals naturally deteriorate without the influence of detrimental outside forces. Negligence Negligence is the failure to use reasonable care resulting in damage or injury to the imported commodities. For example, shipping time-sensitive goods into a known congested port. WSRCC This stands for 'War, strikes, riots, and civil commotions.' An ordinary marine insurance policy does not cover loss due to these conditions, but is almost always added back to the policy by insurers Loss of Use/ If the cargo is damaged and this results in the loss of profits from those goods, insurance will only Market cover the cost of the goods and not the potential profits. If the importer ordered goods for a specific event or customer and delay causes the goods to no longer be wanted, they can’t claim the lost sale. Failure to Pay/ If the client fails to pay during any point in the supply chain resulting in any loss of goods, the marine Collect insurance will not cover the loss. Loss Over If a loss exceeds the maximum per conveyance limit, it will not be covered. Marine insurance policies Policy Limit will only cover up to the limit. An insufficient limit can also lead to a penalty on the claim. Policyholder This refers to any loss, damage, or expense attributable to willful misconduct of the insured. For Misconduct example, the importer could purposefully ship goods set to expire before arrival for the purpose of seeking a claim. Wear and Tear Ordinary leakage, ordinary loss in weight or volume, or ordinary wear and tear are generally excluded from all-risk policies. Insufficient This refers to any loss, damage, or expense caused by insufficient or unsuitable packing only when Packaging packed by the insured. Delay Loss, damage, or expense proximately caused by delay is generally excluded from an all-risk policy. Carrier This refers to loss, damage, or expense arising from insolvency or financial default of the owners, Insolvency managers, charterers, or operators of the vessel.