cargo risk factors
A particular cargo policy covers one single shipment of goods and must be consulted and issued before each separate shipment is made. Cargo insurance policies cover the assured against many risks. Older policies might have had a clause that would read, for example, as follows: “This insurance is against the perils of the seas, fire, assailing thieves, jettisons, barratry of the Master and mariners and all other like perils, losses or misfortunes that have or shall come to the hurt, detriment or damage of the property insured hereunder or any part thereof except as otherwise provided for herein”.
Of the perils insured against by far, the most important is “the perils of the seas,” which refer to fortuitous losses arising through the extraordinary action of the elements at sea. It is often referred to as “heavy weather” or “stress of weather.” Perils of the seas also include accidents in the navigation or marine causalities, such as sinking, stranding, collision, striking of rocks and icebergs. Most cargo insurance policies, however, are underwritten on an “all-risk.” basis. This means that the insured is covered for all risk of loss or damage except for those risks that are specifically excluded in the policy such as loss or damage due to willful destruction by the insured, or the inherent vice of the goods.
Marine cargo insurance is a vital part of international trade. The transportation of goods by sea is inherently risky, and marine insurance is a vital tool to manage that risk. A cargo insurance underwriter will determine whether an applicant for cargo insurance (typically an exporter or an importer) should be approved for cargo insurance under what terms of average (loss). Underwriters evaluate insurance applications and determine coverage amounts and premiums.
As an underwriter, one needs to understand and evaluate many factors to appraise each risk. Some of these factors are: The desired average (loss) clauses: The assured may choose average clauses ranging from the most limited to the most comprehensive coverage. The choice of average clauses has a substantial effect on premium rates.
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The destination or origin: The geographical, physical, or political conditions at the port of origin and destination create differences in the risks involved.
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The ocean carrier: You will need to evaluate the integrity of the vessel(s) to be used, looking to the vessel’s age, classification society, among other factors.
3.**The shipping routes: No two shipping routes present identical risks.
The time for shipping: Greater damage may be sustained by goods shipped across the North Atlantic in winter than in summer, and rainwater damage is more prevalent in the monsoon season than in the dry season.
The packing used: Packing, whether by container, pallet or otherwise, can vary considerably, with resulting variance in premium rates.
The shipping practices: Newcomers to foreign trade may not have experienced traffic personnel. Even experienced shippers vary greatly in their shipping practices.
The assured: The underwriter’s experience with the assured is a valuable guide to determining whether to accept the risk and under what terms. For example, an adverse loss ratio requires careful consideration by the underwriter as to whether the risk should be accepted.