Overview of Cargo Insurance


Insurance is an essential aspect of various industries, including manufacturing and transport. However, when it comes to international trade, many businesses often overlook the significance of insurance due to a lack of understanding of potential risks. In this blog, we will explore the key points to consider regarding insurance in the import and export business. By delving into the concept of risk in insurance terms, the benefits of cargo insurance, and the coverage limitations, we can gain valuable insights into the importance of having appropriate insurance coverage for smooth and secure international trade transactions.

In insurance, the focus lies on “Pure Risk” rather than “Speculative Risk.” Pure Risk refers to the possibility of unexpected events occurring at any time, leading to financial losses. These events can range from theft or damage of valuable goods to injuries sustained by individuals. It is crucial for businesses engaged in international trade to identify and address all potential risks by obtaining the necessary insurance coverage. Applying this concept to cargo, insurance becomes essential in safeguarding shipments against unavoidable losses during transportation. On the other hand, speculative risk involves situations where an outcome is uncertain, and there is a possibility of both profit and loss. Individuals and businesses willingly take up speculative risk in hopes of gaining profits, and is generally not insurable due to its voluntary nature, profit-seeking motives, and moral hazard concerns.

Financial Protection in Transit

Cargo Insurance offers several benefits to businesses involved in international trade. Firstly, it minimizes financial losses in the event of damaged or lost shipments, providing businesses with peace of mind and financial protection. It also safeguards the cash flow of the company, protecting it from unexpected situations that could disrupt operations and helps mitigate the impact of insured losses, allowing businesses to recover and resume operations quickly. Moreover, comprehensive insurance coverage enhances the chances of obtaining financing, as commercial banks are more likely to provide credit to businesses with adequate insurance protection. Reputable service providers ensure efficient and professional settlement of claims, while independent surveyors appointed by organizations like the Ceylon Chamber of Commerce play a vital role in the process.

Uncovered Risks: What Cargo Insurance Does Not Protect Against?

However, it is essential to be aware of certain limitations and exclusions that may apply to cargo insurance. Damages caused by inadequate packaging for the chosen mode of transport may not be covered. Similarly, shipping defective products might not be included in the insurance coverage. Accuracy in describing and declaring goods is crucial, as incorrect cargo descriptions could affect the coverage. Normal wear and tear, as well as loss of weight or volume during transportation, may not be covered. Some insurance providers exclude coverage for hazardous materials, specific electronic products, highly valuable items, or fragile goods. Additionally, coverage may vary depending on the transportation mode, with policies typically only covering cargo on board a ship, aircraft, or truck. If multiple modes of transport are used, it is important to ensure coverage for the entire journey. Different policies also have varying exclusions, with Clause ‘A’ policies offering the widest coverage, while Clause ‘C’ policies may have limitations but could be more cost-effective.

In international trade, cargo insurance plays a crucial role in mitigating the risks associated with transportation. Understanding the concept of risk in insurance terms and the benefits of cargo insurance allows businesses to make informed decisions to protect their interests. While certain limitations exist, having a cargo insurance policy in place ensures coverage for the most common types of losses that can occur during the transportation of goods. It is highly recommended for businesses engaged in import and export to prioritize obtaining appropriate insurance coverage to facilitate a smooth transfer of goods between buyers and sellers and safeguard against potential financial losses.

This article is a part of the Business Tips for Trading Across Borders series — A collaborative effort of 
The Ceylon Chamber of Commerce and United States Agency for International Development (UASID) Partnership for
Accelerating Results in Trade, National Expenditure and Revenue (PARTNER) Activity

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