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
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.
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.