Marine Cargo Insurance Frequently Asked Questions

The scope of cover is defined by the Institute Cargo Clauses (ICC). There are three forms of cover.

1. Institute Cargo Clause (All Risks) – ICC(A):
This is the widest form of marine cargo insurance that covers all insurable risks unless explicitly excluded. Common exclusions include misconduct of the insured, ordinary leakage, unseaworthiness of the vessel, and inherent vice (inherent weakness in ship or cargo container).

2. Institute Cargo Clause (Named Risks, Broad) – ICC(B):
This type of insurance covers only risks that are explicitly named.
It provides cover for loss or damage of insured cargo attributable to:
Fire or explosion
Stranding, grounding, sinking, capsizing
Overturning/derailment of land conveyance
Collision or contact of vessels
Discharge of cargo at port of distress
Earthquake, volcanic eruption or lightening
Loss or damage caused by
General average sacrifice
Jettison/Dumping of goods
Washing overboard
Entry of sea water
Total loss of package overboard during loading/unloading
General Average
Both to blame

3. Institute Cargo Clause (Named Risks, Narrow) – ICC(C):
This is the least form of cover on a named perils basis which covers only loss or damage of insured cargo reasonably attributable to:
Fire or explosion
Vessel or craft being stranded grounded sunk or capsized
Overturning or derailment of land conveyance
Collision or contact of vessel craft or conveyance with any external object other than water
Discharge of cargo at a port of distress
Loss or damage caused by General Average Sacrifice / Jettison / dumping of goods

There are three types of Marine Cargo Insurance:

1. Single Shipment
  – Premium rates and insurer approval will have to be sought with every shipment made. This type of policy is ideal for companies that do not ship or receive goods often. However, for companies with high shipping volumes, the below two policy types are recommended instead.

2. Open Cover
  – Marine Open Cover is an umbrella cover which is given to clients who are engaged in continuous and regular import and/or export of goods. An open cover is not a stamped document and thus it is not a policy of insurance. It is an agreement to provide insurance cover on all shipments of the insured at pre-agreed rates and terms. As and when shipments are declared the Insurer will issue specific policies or certificates of insurance which are stamped documents. The advantage of open cover is that it gives continuous and automatic protection to cover all shipments declared by the insured.

3. Annual Cover
  – Annual policy works almost similar to the open cover policy, except that the insurance period is for 12 months, and subjected to be renewed annually.

Marine Cargo insurance is to limit your risk exposure to financial loss due to damage/ loss of goods during marine transit. Shipping goods via sea or air is risky. Goods may be damaged or completely lost while on their way to you or your customer.

Marine Cargo Insurance provides excellent protection for your goods should they suffer damage or loss. This safeguards your revenues, and ensures you have the cash flow to provide replacement goods. Replacing damaged or lost goods in transit protects you from lawsuits filed by unhappy customers.

In certain circumstances, marine cargo insurance may also be compulsory if the shipment is financed by a bank. 

Follow this simple two-step process to arrive at the amount of Marine Cargo Insurance you need.

1. Determine Maximum Shipping Amount At Any One Time

Calculate the maximum value of goods that you will ship at any one time. Usually, marine cargo insurers will value goods to be shipped at the invoice cost + freight cost.

2. Add The Advance

Take the sum from step 1, and add an additional 10% – 20%. This is called the “advance”, and is to account for additional expenses which may be incurred during shipment.

The final amount is the maximum amount of coverage you will need from a Marine Cargo Insurance policy.

If you receive goods from abroad, or ship goods overseas, you will encounter different INCOTERMS. This abbreviation stands for International Commercial Terms.

These are a set of rules which define:
1. Duties of buyers and sellers to each other.
2. Who takes care of shipping insurance, licenses, and permissions.
3. Who arranges the transport, and until which point.
4. The point when costs and risks pass from the seller to the buyer.

Knowing different INCOTERMS is important, because it will impact the type of shipping insurance you will need to buy for both goods you ship AND receive.

Common INCOTERMS are:
1. Cost, Insurance, Freight (CIF)
  – Sellers must pay for insurance until goods reach their port of destination.
  a. If you’re the seller: you’ll need to protect your goods with Marine Cargo Insurance.
  b. If you’re the buyer: you don’t need to buy insurance.

2. Cost and Freight (CFR)
  – Buyers must pay for insurance once goods are loaded onto the ship, and until they reach their port of destination.
  a. If you’re the seller: you don’t need to buy insurance.
  b. If you’re the buyer: you’ll need to protect your goods with Marine Cargo Insurance.

2. Free On Board (FOB)
  – Sellers must pay for insurance until goods are loaded onto the ship. Buyers must then pay for insurance until goods reach their port of destination.
    a. If you’re the seller: you’ll need to protect your goods with Marine Cargo Insurance.
    b. If you’re the buyer: you’ll need to protect your goods with Marine Cargo Insurance.

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