When was the last time you checked your insurance?

May 11, 2016
Neil Moon
,

I am sure, as a supply chain professional, you ensure that your procurement and sales teams use the appropriate INCO terms in their contracts. This determines the transfer of risk from seller to buyer and the responsibility for insuring the cargo while in transit. But have you:

  • Taken the time to check your insurance policy and understand what is included and excluded from that insurance?
  • Asked for your counterparty’s insurance policy, so that you know what cover you do or do not have under their policy?
  • Do you know who is responsible, within your company, for the purchase of your cargo insurance?
  • Are you sure they fully understand the size and nature of the risks of your goods in transit and therefore have purchased the right insurance?

If you are in any doubt I would urge you to pay attention to this before an incident occurs and you find yourself responsible for resolving the situation. Whoever has procured your insurance will no doubt have taken the advice of a professional broker. It is in the interests of these brokers to ensure you have the appropriate insurance and so it is well worth consulting them if you have any doubts about your cargo insurance policy. A good broker will provide significant free advice and expertise.

Who purchases your insurance?

In many large manufacturing companies cargo insurance is one small section of a much larger policy covering a range of risks for the whole company. Many of the individuals who are responsible for procuring this insurance focus on the largest and most obvious risks and do not understand the complexity and nature of cargo insurance. Some insurance policies cover all risks and indeed when an incident occurs the policy will cover you in all circumstances and the insurer takes the responsibility for subsequently recovering any or all of the losses from third parties who are liable. However many policies have exclusion clauses that in the event where other insurance covers the incident, or other parties are liable, then your insurance will limit the sum they pay and it becomes your responsibility to recover the losses from those other sources.

Don’t wait until after an incident has occurred to find out what cargo insurance you have and what exclusions apply. Hopefully incidents are rare, but the investment now in ensuring you have the appropriate insurance cover may save you substantial costs and management time afterwards.

What does you insurance include and, more importantly exclude?

Some cargo insurance policies might appear to cover all eventualities. But often exclusion clauses apply that can substantially limit your cover.

If your insurance policy does have this type of exclusion then when an incident occurs the insurer may appoint someone, such as a forensic investigator, to determine the limit of the insurer’s liability. Don’t be misled into thinking that this person is working for your best interests. They are responsible to the insurer and their underwriters. However they will be seeking evidence and asking many of the questions that you will also want to address. They are therefore a strong ally and you should cooperate with them fully. However as soon as they have determined the limit and value of the insured losses they will no longer support your need to resolve the incident and so you should not become dependent upon them.

How do you manage an incident?

Realise that in addition to resolving the incident with your customer/supplier and the carrier, you will have to collect all the appropriate evidence to support any claim on your insurance or any third party. It is often the case that in the course of normal operations much of this evidence is systematically produced and then never required. Thus you should be clear who, what and where this evidence is generated and stored so that you may secure it quickly in the event of an incident. It is often too late after an incident has occurred to start asking:

  • Where are the analysis results stored?
  • Who holds retained samples?
  • Who performs which checks and at what point between the cargo being despatched and receipt at the destination?

Above all my advice is: be prepared. Don’t wait until after an incident has occurred and substantial losses have been made to discover that you insurance isn’t what you expected it to be and that you cannot quickly secure the evidence to support or deny any insurance claim.

When was the last time you checked your insurance?