Types of Marine Cargo Insurance: Policies for Peace of Mind

The different types of marine cargo insurance available to shippers today offer incredible protection against several potential hazards while loading, unloading, and transporting goods bound for international transport on the high seas.

The Federal Maritime Commission (FMC) regulates the shipment of cargo via ocean transportation services. While the FMC mandates financial responsibility to NVOCCs and forwarders, the shipper must independently provide coverage to protect their shipment. Various types of marine cargo insurance shippers can choose from marine specific transit or marine open policies.

Perhaps one of the most critical safeguards against loss at sea, marine cargo insurance is the ultimate safeguard against goods damaged in transit, theft, and total loss. The article below will help you better understand the best shield for your business.

What is Marine Cargo Insurance?

What is marine cargo insurance? How does it differ from marine insurance coverage? It is essential to know the difference between the two types of insurance and why marine cargo insurance is important to you, the shipper.

Marine cargo insurance is a form of coverage that protects cargo transported on a ship and anything owned aboard a ship during the trip. It is like car insurance but for your cargo and belongings aboard a vessel as it journeys from port to port.

Like car insurance, marine insurance has varying degrees of cost associated with it, and it is recommended by the Federal Maritime Commission (FMC). Here are a few examples of factors that can influence the cost of covering goods in transit.

• The value of the cargo
• The product category
• Type of packaging used
• Origin and destination distances

Marine cargo insurance should not be viewed as an option but a mandatory measure; why is this? The reasoning is that accidents can and do happen; these accidents can occur at the port during loading or unloading or while traversing the seas aboard a ship.

It is essential to understand that marine cargo insurance coverage is more expansive than just pertaining to sea travel. Any inland transference at or near the port is also covered during shipping, often during storage, loading, and unloading procedures.

It is also essential to understand that besides any damages and accidents that are incurred as a part of the voyage or during the loading and unloading process. The financial cost associated with delays is also covered as part of a marine cargo insurance policy.

Consult our article on the benefits of marine cargo insurance for generalized information about this policy.

The Two Main Types of Marine Cargo Insurance

Within marine cargo insurance, two main types of coverage exist. These coverage options are in place to offer alternatives to the policyholder that are more timeline-specific than feature-specific. 

Marine cargo insurance coverage is specific in that it revolves around your cargo, it is handling, and the vessel that carries your goods. Your committed interest in the cargo being shipped is protected, removing the risk of the financial loss of your investment.

Here are the two main types of marine cargo insurance:

1. Marine Open Policy: Non-small to medium enterprises (SMEs), especially those who deal internationally with larger, more consistent trade volumes, will acquire a marine open policy. This policy type offers year-round insurance coverage based on the shipment and not the goods being shipped. 
2. Marine Specific Transit: This policy type is perfect for SMEs as it revolves around individual shipments, covering the shipment from its port of origin to its port of destination. These policies are generally acquired before goods are handled at the port of origin and last until they have reached their destination.

When selecting a coverage type, it is essential to consider several vital points surrounding your shipment. The frequency you ship, the volume of your shipments, the value, and the distance being traveled are all relative concerns when selecting a type of marine cargo insurance.

However, as you can see above, comparing both marine open policy and marine specific transit is more about volume and rate than anything. That is why SMEs generally get specific and general goods coverage annually.

The Institute of Cargo Clauses (ICC) illustrates what kind of coverage within a category of insurance coverage can be applied to international shipments or what kind of extensions can be used. 

Here are the three main categories of ICC marine cargo clauses:

1. Clause A – All Risk coverage is the absolute best coverage available, offering the most protection.
2. Clause B – Basic coverage that is more limited and is also restricted to named or specified perils.
3. Clause C – General Average coverage which is limited to fire and explosion, capsizing, sinking, and failed cargo delivery.

Both varying requirements and modes of transportation can also play a role in selecting the appropriate coverage required for a particular shipment. Clauses A through C will cover any vessels traveling by sea.

Other modes of transportation, such as coastal or inland waterways, are also covered by clauses A through C. There are additional extensions that create an added premium to the policy.

Either way, selecting marine cargo insurance coverage for your shipment is the intelligent play. An unexpected loss of freight without coverage can prove troublesome for any business, no matter how small.

Look into our article on CIF insurance to find out how it can help you with your ocean shipments.

What Does Marine Cargo Insurance Cover?

Essentially, marine cargo insurance covers your goods from damages, time delays, and total loss. These three factors can have an unbelievable impact on those who ignore the possibility of loss or damages resulting from a storm at sea, fire, or unsecured containers that result in damages.

As noted earlier, the coverage provided protects you, the shipper, from a loss on goods damaged or destroyed as a result of the following:

• Weather: The weather at sea can play a critical role in how overseas damages can and do occur. High winds and severe storms from hurricanes, typhoons, and tropical storms often are the root cause of damage while at sea.

• Piracy: The theft of goods is always a concern, especially in certain parts of the world where piracy runs rampant. While piracy typically occurs in regions like the coast of Africa, the Indian Ocean, Southeast Asia, and the Caribbean, it can still happen anywhere.

• Accidents: Unfortunate events happen all the time; no matter how careful one can be, they still happen. The handling of goods occurs during the loading, storage, and unloading process. Insurance coverage is an effective failsafe to provide financial compensation.

Here are some examples of what is and is not covered by marine cargo insurance as it relates to your cargo aboard a vessel in transit or at a port awaiting storage or shipboard loading:

Things generally covered:

1. Natural weather occurrences or disasters
2. Acts of piracy or theft
3. Sinking while at sea
4. Collisions that cause damage to cargo
5. Handling during loading or unloading
6. Additional fees that result from delays

Things not covered: 

1. Chemical reactions that result in damage
2. Wear and Tear
3. Firearms and munitions
4. Leaking due to poor packaging
5. War, strikes, riots, or civil commotions
6. Fraud or damaging cargo on purpose

Marine cargo insurance, more than anything, will help stabilize international relationships. The ability to protect the interest of a foreign business partner goes an incredibly long way in solidifying reliable relationships now and in the future.

This insurance is not reserved for mega corporations or large-scale shipments but is ideal for SMEs. Marine cargo insurance is critically important to an SME in any business model as it assures the goods are protected regardless of importing or exporting.

Our article on marine cargo insurance costs will show you how much you’ll spend on this important form of protection.

Marine Cargo Insurance Claims: What You Need to Know

If you need to file a claim due to damages or any other type of loss, there is a process and a collection of information that is required. Typically in the event of loss and when a claim is filed, the shipper must also fill out a claim form.

In order to process an insurance claim effectively, a three-step process is required. Completing the claims process step by step is the most efficient way to facilitate a claim and get a settlement as fast as possible.

Step One: Notification

• Claims notification Form: A detailed summary of the claim with an estimate of the lost value; this must include all relative contact information.
• Reserve your rights: This is a notification to the responsible party that you have suffered a loss during shipping and that you are filing a claim.

• Expediency: Do not wait to turn in a claim; you should submit a notification when a claim is needed.

Step Two: Information Gathering

• Volume: The volume of a claim is considered substantial when the value exceeds $5,000 and is determined ultimately determined by the insurance provider. For smaller claims, the process is simplified.
• Specifics: Completed documentation is required to substantiate the claim. A claims adjuster will advise what documentation is needed to facilitate your claim. 
• Surveyor: In the case of large volume claims, a surveyor will contact you directly, collecting all documentation for the adjuster after a detailed inspection.
• Adjuster: The adjuster goes over the report submitted by the surveyor to both process the claim and define the settlement.

Step Three: The Determination Stage

• Verification for policy/claim coverage is completed. This ensures that the claim is covered appropriately by the policy.
• A determination of the amount covered by the policy and supporting documentation is assessed.
• A payout by the adjuster is given once a final determination is made.

To reduce the amount of time needed for a filed claim to be processed, always include the following information in your completed claim forms. This information helps to answer any questions the adjuster may have regarding your claim.

• Completed claim form
• Copy of the Bill of Lading
• Copy of the insurance policy
• Copy of temperature documentation 
• Copy of storage documentation
• Packing list and commercial invoice
• Any contract documentation or receipts
• Police report documents
• Estimated quote for repair or replacement

Once all three steps are complete, the documentation has been passed along to the surveyor and adjuster. The policy determines the recoverable amount and the information provided regarding additional expenses otherwise unknown.

The three steps in filing and processing a claim can be a lengthy process. Again, it is imperative to note that a claim needs to be submitted as fast as possible to speed things along and help validate your filing quickly and accurately.

Marine Cargo Insurance Costs: What Influences Cost?

When shipping goods worldwide, there are inherent risks associated with maritime cargo. Planning out the costs associated with coverage so that you, as a shipper, are prepared for the unexpected is crucial.

It is important to note that in almost all cases, the cost of coverage is roughly around half a percent in terms of the value of the entire shipment. However, the percentage of the entire value can go as high as two percent in some cases.

Many factors can and will influence the cost of a marine cargo insurance policy. Here are some examples of what will influence the cost of marine cargo insurance.

• Total Value: A percentage of the shipment’s total value in terms of all goods in a single shipment.

• Travel Route: The shipment’s total travel distance is calculated between the origin, destination, and region traveled and is also factored into the equation.

• Commodity classification: Depending on the commodity, additional costs can be added to the shipment. Examples like petroleum and other hazardous chemicals bring an added cost.

• Shipping Container: Shipping container sizes vary between 20 and 40 feet. Also, there are open variants of shipping containers, which play a role in determining the cost.

• Claims History: The cost can multiply if a shipper has a relevant history for processing multiple claims or otherwise there is a questionable history.

Along with the influence of cost, there is the potential possibility of risk associated with shipping goods across the ocean to consider. While ship losses don’t directly affect insurance costs, they do affect the reasoning for obtaining insurance in the first place.

A lot can happen once an ocean vessel leaves the port of origin and heads to its destination. The table below outlines ship losses in 2020, showing that a loss at sea, however minimal by comparison to the number of completed shipments, is a real threat.

Ship Losses in 2020

Foundered or sunk	24 instances
Fire or explosion	10 instances
Wrecked or stranded	7 instances112
Miscellaneous	5 instances
Collision	2 instances
Machine failures or damage	1 instance

Compared to the total number of successful shipments, this statistic may seem like a drop in the bucket. Although only 49 ship losses occurred in 2020, the total cost associated with these losses was monumental in scope and can happen anytime or anywhere. 

All of the above factors play a role in determining the actual cost for coverage of a shipment. Speaking with an experienced and knowledgeable consultant will determine the specifics of covering your marine cargo during an overseas shipment.

Pros and Cons of Each Type of Marine Cargo Insurance

A similarity can be drawn between covering your cargo and buying an extended warranty on goods purchased at a store or online. The same basic concept of protecting yourself against a potential inevitability is the same.

With that said, covering your cargo with protection is critically vital so that the risk of financial loss is minimized or eliminated. There are, however, both pros and cons surrounding marine open policy and marine specific transit insurance, and they are as follows.

Marine Open Policy

Pros:

• Has the flexibility to cover multiple shipments during a 12-month period.
• Multiple contracts are not required, all declarations are honored by the provider.
• The insurance coverage is a stamped, enforceable contract.

Cons:

• Liability of the provider can be limited if a clause of per location or per bottom is enacted.
• The insurance provider is only required to offer partial recovery under these clauses.
• Is not a cost-effective option for shippers who do not move consistent loads.

Marine Specific Transit

Pros:

• Covers all types of shipping transports over a single shipment.
• Issuing a single voyage policy is easier than a continuous one.
• All types of cargo can be covered, and the maximum value is also covered.

Cons:

• Does not favor a shipper who has continuous shipments due to both cost and time.
• Not a cost-effective option if you ship consistently or have multiple shipments in a particular time frame.
• Issues related to the shipment can affect liability and what is recoverable.

It is also essential to note that marine specific transit insurance covers all three types of transit clauses. Under ICC Transit Clauses A, B, and C, the premium required is generally not a costly expense. 

The positives of these two types of marine cargo insurance definitely outweigh the negatives. Insurance coverage has a profound impact on a business’s financial stability. It is essential to weigh out the pros and cons of each in order to determine what is best for your shipments.

Safe and Smooth Sailing With Freight Insurance Coverage

Freight Insurance Coverage is committed to providing world-class marine cargo insurance anytime and anywhere you need the best coverage for your shipment. Get started by filling out one of our quotes, and the insurance cost is factored into the total cost of your shipment. 

Figuring out the cost of insurance and any specifics can be a real hassle. Our team at Freight Insurance Coverage is standing by to help get your shipment underway with the peace of mind that your shipment is protected.
You can fill out your quote here or call us at (866) 975-0749 so that we can answer any questions you might have regarding your shipment and the coverage you need.