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Shipper’s Interest Cargo Insurance and
Other Vital Coverage Options for
International Transportation
Jason OdgersVP Business DevelopmentRoanoke Insurance Group
9/4/18
Outline
• Shipper’s Interest Cargo Insurance
– What is it
– Why is it important
– How much does it cost
– Where can it be purchased?
• Liability Exposures
– Cargo Liability
– Professional Liability
• Bonus Content: Tariff Increases & Bond Sufficiency
Cargo Insurance
What Is It
“First Party” insurance intended to indemnify the insured for physical loss or damage.
• Free of Particular Average (ICC-C)– Named Peril: Won’t pay partial damages unless the vessel is
stranded, sunk, burned or involved in a collision
– Catastrophic / Total Loss
• All Risk (ICC-A)– Named Exclusions: All risks of physical loss/damage unless
specifically excluded
Why Needed
1. Physical Loss/Damage
2. Theft & Pilferage
3. Piracy
4. Terms of Sale / Risk Transfer
5. General Average
6. Carrier’s Limits of Liability
#1 Physical Loss/Damage
#2 Theft: Heat Maps
“Target” Commodities
#3 Piracy: Facts & Figures
• Piracy attacks in 2017: 180
• 136 vessels boarded
• 6 vessels hijacked
• 22 attempted hijacking incidents
• 16 vessels fired upon
• 91 crew taken hostage; 3 killed
• Often motivated by terrorism
• Generally, commercial vessels do not maintain defensive weapons on board.
• Piracy reference sites:
– http://www.icc-ccs.org
– http://www.cargosecurityinternational.com
264
245 246
191180
0
50
100
150
200
250
300
2013 2014 2015 2016 2017
Attacks
Attacks
Live Piracy Map
#4 Terms of Sale: Incoterms
Terms of Sale / Incoterms
Terms of Sale / Incoterms
CIF: Cost, Insurance & Freight(Named Place of Destination)
The risk of loss or damage is transferred from the seller to the
buyer when the goods pass the ships rail at the port of loading
• Seller procures insurance against the buyers risk of loss of or damage
• Quality v. Price?
• Claims: Foreign Insurer / USD?
• Duty Paid on Insurance Premium?
• The seller is required to obtain insurance only on minimum cover
• FPA/ICC-C terms = Named Peril Only
Terms of Sale / Incoterms
FOB: Free on Board (Named Port of Shipment)
Risk of loss of or damage passes when the goods are loaded on
board the vessel at the port of export.
– Precarriage Exposure?
– Credit Terms?
#5 General Average
• Pre-dates cargo insurance
• Exceptional expenses which benefit all parties to the voyage
• Freight is seized and GA guarantee (Bond) must be posted to
claim freight.– Usually 8% - 12% of cargo value
– Flaminia concluded at 92% of cargo value
• Provided immediately by the insurer (when insured)
• If uninsured, cash must be posted by the cargo owner.
• Deposit can increase based on the final settlement/adjustment
which could take years.
Sample Calculation
• 50 million vessel value and $50 million of cargo on
vessel yields a $100 million voyage value.
• If a shipper has $1 million in cargo on the vessel he/she
is a 1/100 or 1% participant.
• $5 million in cargo (not the shipper’s) was jettisoned to
stabilize a vessel in a bad storm.
• The shipper is (initially) responsible for 1% of $5 million
($50,000).
#6 Carriers Limits of Liability
Ocean Carriers $500/CSU*
International Air Carriers $9.07/lb. or approx. $20/kg.
Domestic Airlines $.50/lb.
Truckers Limited; $.50/lb common
Rail Carriers Limited
Couriers (UPS, FedEx) $100 any one shipment
Warehouseman Limited
*Customary Shipping Unit
Ocean
The Carriage of Goods by Sea Act (COGSA) limits recovery to the lesser of the value of the cargo damaged or lost or $500 per “customary shipping unit.” Enacted in 1936 before the advent of containerization.
Exclusions•Acts of God (heavy weather, earthquake, lightning, etc.)
•Fire
•Theft
•Acts of War, Strikes, Riots & Civil Commotions
•Criminal acts or negligence by captain or crew
•Latent defect in hull or machinery
•Un-seaworthiness of vessel
•General Average
What Does It Cost
• Generally insured for Cost, Freight + 10%
• Rates applied “per hundred”
– Insured Value / 100 (Rate) = Premium• Example (single shipment)
– $113,300 / 100 = 1133 (.25) = $283.25
• Example (annual)
– $10,000,000 / 100 = 100,000 (.25) = $25,000
• Simplified
– $10,000,000 (.25%) = $25,000
Insurance premiums are fractions of %’s of the insured value
Where to Purchase
Insurance Company(Lloyd’s, ACE, TT Club, Travelers,
Great American, etc.)
Insurance Broker(Roanoke)
Transportation Intermediary
(OFF/NVOCC/CHB)
Cargo Owner(Large)
Cargo Owner(SME)
Liability Exposures
Common Carriers
• Liability for physical loss/damage prescribed (limited) by law/convention
• Declared in tariff (if applicable), T&C’s of service and contract of carriage
(bill of lading)
– Released Rate Doctrine / Declared Value
• Carrier liability insurance
– Addresses STANDARD liability
• Contractual Liability excluded unless approved by underwriters
– Protects INSURED from financial stress resulting from claims.
– DEFENSE Oriented
– Does NOT provide commercial consideration
• The carrier’s liability policy limit is NOT the same as their legal liability for
cargo loss/damage.
Intermediaries
Professional Liability (E&O) Insurance: Addresses claims that the insured’s error, omission or negligent act caused their client financial injury.
Quota Problem
5%
Failure to Obtain Duty
Drawback
1%
Improper Classification
of Merchandise
2%
Release of Cargo w/o
Original Documentation
23%
Cargo Released to
Wrong Party
2%
Loss or Damage to
Cargo24%
Misdirected Freight
8%
Delay/Late Delivery
8%
Negligent Selection of
Underlying Provider
6%
Failure to Follow
Instructions
9%
Documentation Error
13%
Tariff Increases & Bond Sufficiency
• CTB amount = 10% DTF’s for previous 12 months.
• When “saturated” USCBP will declare it “insufficient” and require
replacement with a larger bond
– Standard insufficiency = 15d
– Grossly insufficient = Immediate
• Results of insufficiency / increases
– Higher bonds = more underwriting requirements & increased premiums
– Bond amounts can not be amended, must be terminated & replaced
• Bond premiums are typically “earned” and not-refundable
• New collateral must be posted (old collateral not released)
– Goods can not be cleared without sufficient bond in place
• Be proactive
– Forecast volumes & DTF’s for NEXT 12 months and secure an adequate bond
NOW.
Thank you!
Roanoke Insurance Group Inc. is an Illinois, USA Corporation with its headquarters
just outside of Chicago. Established in 1935, Roanoke Insurance Group became a
subsidiary of Munich Re in 2008. We are a Managing General Agent for American
Alternative Insurance Corporation (AAIC) which is rated ‘A+’ (Superior) by A.M. Best
Company and is a subsidiary of Munich Reinsurance America, Inc. As an affiliate of
the Munich Re Syndicate Ltd. (a Munich Re owned Lloyd’s of London underwriter),
we also hold Lloyd’s of London underwriting and claims settling authority for surety,
marine cargo, professional liability and other related insurance—in addition to
brokerage capabilities through various insurance markets. Our primary client base is
in North America, but as we specialize in providing a seamless integration of
coverage for organizations that transport goods globally, our clients are located all
over the world.
Contact
Jason Odgers
VP Client Development
Roanoke Insurance Group
843-724-7534