Top 10 in­sur­ance risks for ma­rine cargo

As early as the 12th century, trans­porta­tion of goods be­tween ports around the world ran the risk of fall­ing prey to the per­ils of piracy and the un­tame­able spirit of the high seas. As a re­sult, trans­porters had to in­sure their cargo, mak­ing ma­rine in­sura

RISKSA Magazine - - CONTENTS - Naomi du Plessis

The vol­ume of ex­ports is grow­ing at a rapid pace, which is not only good for ship­ping com­pa­nies and coun­try’s econ­omy, but also for the ma­rine in­sur­ance in­dus­try. Even though the risks in­volved in mod­ern ma­rine cargo trans­porta­tion are far less than those ex­pe­ri­enced by our sea­far­ing fore­fa­thers, the pos­si­ble threats and risks ex­pe­ri­enced are still daily con­cerns in both the ship­ping and in­sur­ance in­dus­tries.

The risks

Rain on your pa­rade: In life, there are many sit­u­a­tions that are out of our con­trol. The same could be said for the weather in the in­sur­ance sec­tor. Acts of God, as we like to call them, make up a sig­nif­i­cant per­cent­age of dam­age

and to­tal loss ex­pe­ri­enced in ma­rine cargo trans­porta­tion. Ac­cord­ing to the In­ter­na­tional Union of Ma­rine In­sur­ance ( IUMI) 2014 Spring Sta­tis­tics, weather- re­lated in­ci­dents rep­re­sented al­most 50 per cent of the to­tal losses be­tween 2009 and 2013. A re­cent in­crease in rogue waves has not only re­sulted in the dam­age of ves­sels, but also hun­dreds of con­tain­ers be­ing washed over­board an­nu­ally. Global warm­ing is thought to be a con­trib­u­tor to this, as weather- re­lated dam­age and loss is be­com­ing more com­mon. Un­sea­wor­thy ves­sels: The ne­glect of reg­u­lar and sig­nif­i­cant main­te­nance of fleets and ves­sels of­ten re­sults in break­downs and strand­ing. Old ton­nage is also an added risk be­cause of their age. Ac­cord­ing to the IUMI, more than 60 per cent of the dry cargo ships lost dur­ing the pe­riod be­tween 2009 and 2013 were more than 25 years old, which demon­strated the risk that old and ne­glected ves­sels present. Pil­lage and plun­der: To the lay ear, piracy sounds like a prob­lem of yes­ter­year, but there is still a high fre­quency of theft and crim­i­nal ac­tiv­ity within ma­rine cargo trans­porta­tion. This will largely de­pend on the type of cargo that the ves­sel is car­ry­ing, which in­cludes items that are in high de­mand or that are eas­ily sold on the black mar­ket. “Food, drink and cloth­ing are tar­geted the most in South Africa, es­pe­cially higher value items such as al­co­hol, en­ergy drinks and brand cloth­ing or shoes. This is fol­lowed by elec­tronic goods such as tele­vi­sions, as well as cell­phones”, said Missy Good, ma­rine ac­count ex­ec­u­tive at Aon South Africa. Land ahoy: Ground­ing or strand­ing ac­count for 25 per cent of cargo losses, ac­cord­ing to the IUMI. This in turn af­fects the de­liv­ery time of cargo, and in cases where fresh pro­duce is in­volved, will af­fect their sell- by date. Wa­ter dam­age: Not only does wa­ter dam­age in­clude seawa­ter en­ter­ing the ship or container, but it also in­cludes mildew odour on items such as cloth­ing, due to the pres­ence of mois­ture in the container from a small leak. Good adds that or­di­nary leak­age, mould and in­fes­ta­tion are of­ten ex­cluded un­der the ma­rine cargo pol­icy. Non- de­liv­ery and de­lay: “Ma­rine cargo in­sur­ance cov­ers only phys­i­cal loss or dam­age to the cargo, there­fore any sub­se­quent loss such as loss of mar­ket or de­lay will not be cov­ered in terms of the pol­icy. In some in­stances though, some of the el­e­ments might be writ­ten back into the pol­icy. For ex­am­ple, the In­sti­tute Frozen Food Ex­ten­sion Clause will cover dam­age to fresh pro­duce in the event the ves­sel is de­layed,” says Good. Han­dle with care: Break­age or dam­age due to bad han­dling and pack­ing is a sig­nif­i­cant is­sue within cargo safety. “It is very dif­fi­cult to put a per­cent­age to poor han­dling. How­ever, pack­ing or prepa­ra­tion of sub­ject mat­ter is cru­cial, and goods in­sured must be packed to with­stand the or­di­nary in­ci­dents of the in­sured tran­sit,” notes Good on the sig­nif­i­cance of cor­rect pack­ing and han­dling. Dam­age due to poor tem­per­a­ture con­trol is also an is­sue with re­gard to the preser­va­tion of frozen foods. Ves­sel size: Sal­vage from mod­ern mega ships might re­quire un­prece­dented ef­forts and com­plex op­er­a­tions due to their size, and the amount of con­tain­ers they carry. This is par­tic­u­larly the case if an ac­ci­dent were to hap­pen in a re­mote area. Fired up: Fire and ex­plo­sions on board cargo ves­sels are one of the main risks that ma­rine in­sur­ance cov­ers, ac­cord­ing to Good. This may be due to elec­tri­cal mal­func­tions, light­ning or petrol leaks. Gen­eral aver­age: Gen­eral aver­age is an an­cient con­cept, but is still one of the main risks that ma­rine in­sur­ance cov­ers as these sac­ri­fices or jet­ti­sons are very com­mon.

Thoughts for the bro­ker

An all- risk cargo pol­icy, which cov­ers the most com­mon ma­rine risks, is the go- to pol­icy for in­sur­ers, but it is up to the bro­ker to make the client aware of the ex­clu­sions that may not fall un­der all- risk, such as com­mon losses. The bro­ker, as well as the client, needs to en­sure that they are fully aware of these pos­si­ble risks and to make sure they are prop­erly cov­ered in an additional clause. It is also vi­tal that the bro­ker knows and un­der­stands the needs of the client in or­der to as­sist them with ob­tain­ing the best tai­lor- made pol­icy for their busi­ness needs, whether it be an an­nual pol­icy or ship­ment by ship­ment pol­icy. “It is the bro­ker’s re­spon­si­bil­ity to high­light to the client ex­actly what their cover en­tails, and to en­sure they are ad­e­quately cov­ered. We list the ex­clu­sions un­der the ma­rine pol­icy in the pre­re­newal documents we send to all our clients, and dis­cuss these ex­clu­sions with the client at re­newal. Some of the risks, such as container li­a­bil­ity and credit risk, are avail­able in the in­sur­ance mar­ket, and we will as­sist the client in ob­tain­ing quo­ta­tions, or di­rect them to the right depart­ment,” says Good. By ex­am­in­ing past claims and case stud­ies, bro­kers are able to learn how to bet­ter im­prove their risk en­gi­neer­ing, which in turn will ben­e­fit the cus­tomer. Through un­der­stand­ing risk en­gi­neer­ing, the bro­ker is en­abling in­formed de­ci­sion- mak­ing re­gard­ing mea­sur­ing risk im­prove­ments, and is able to bet­ter ser­vice the client’s needs.

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