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Understanding Transport Insurance

By: Dave Howell - Updated: 2 Dec 2010 | comments*Discuss
Transport Insurance Products

One of the most important aspects of international business is handling the logistics that move your goods from your factory or warehouse to their destination country. The transport you choose is vitally important to ensure your products reach their customers on time and intact. As you will be moving products in some cases thousands of miles, and may have to tranship them across many forms of transport, insuring your consignments against loss or damage is essential.

If you use the service of a freight forwarder or a logistics company, they will have only limited liability insurance to cover themselves against any claim made for the loss or damage of any goods they carry for a client. Often, this insurance is not adequate to ensure your products are protected if something were to happen to them. It’s therefore vital that you have insurance cover of your own to cover the transport of your products to each international destination.

Insurance Checklist

Before looking at the different types of insurance that cover each of the main transport types, use the checklist below to ensure you understand the components of the insurance cover you must buy to protect your products:

The amount of cover
As the insurance you will buy is to provide you with enough money to replace the lost or damage products, it is important to accurately calculate the value of your international consignments. The cover you buy is called the Contract of Indemnity.

Description of products
So that the insurance underwriter can accurately calculate the premium you must pay to gain the insurance cover you need, it is important to give them accurate information about your products and the means of transport you will be using.

As with the other forms of insurance you buy for your business, international transport insurance also has a number of exclusions. Ensure you are fully aware of these exclusions as they could severely impact on the amount of compensation your business would receive in the event of a claim being made.

Allocation of Risk

The transport of products overseas will mean you have to be clear how much of the risk during transit is taken by you the seller, and your customer as the buyer. The International Commercial Contracts or Incoterms are used to show how each product within a consignment is covered by insurance. Generally you will use two forms of Incoterms: CIF (Cost, Insurance, Freight) or CIP (Carriage and Insurance Paid). Your freight forwarder will be able to give you advice on which of these form of insurance cover are most appropriate for your transport type and the products you are moving to an international market.

Insurance for Road Transport

The insurance type that you will need to transport your products by road will depend on which party takes the most risk during the transport phase. The CIF and CIP Incoterms arrangement come into play here. Transport via road comes under the CMR that gives basic insurance cover when using this form of transport. It is advisable to check the cover that CMR offer to make sure it is adequate. Additional insurance cover may be needed if your business will transport dangerous goods.

Insurance for Air Transport

General cargo insurance is available in three varieties – A, B or C. Clause A provides the most comprehensive insurance, with clause C the least. Air transport can also use the Institute Cargo Clauses (Air) that offers you the same cover as clause A of the standard general cargo insurance. Your freight forwarder should have basic limited liability insurance for air transport, but it is always wise to check the extent of this cover and take out additional policies if you are unsure if their cover will be adequate.

Insurance for Rail Transport

As with other forms of transport, rail consignments must have adequate insurance cover. Your freight forwarder will have basic liability insurance, but this insurance cover may not be detailed enough. Incoterms once again come into play. Always take advice about the insurance cover that you must have to ensure any loss can be compensated for.

Insurance for Sea Transport

You may come across the term marine insurance. This type of insurance isn’t just for transport by sea but as be used for land based transport as well. Under the transport modal conventions you automatically have basic insurance cover, but this is often not comprehensive enough to cover all of the risks your transport and products could face when they are shipped to their international destination. Additional insurance cover is always advisable to cover any unforeseen incidents.

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