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Demystifying Cargo Insurance: What is it and Why Do You Need It?

Posted on 23 Jan, 2024
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The world of trade heavily relies on the seamless movement of goods across borders. However, transporting goods from one place to another can be risky due to issues like theft, damage or loss. Businesses opt for cargo insurance to protect themselves from these uncertainties. Cargo insurance is crucial in mitigating the risks involved in transporting goods by compensating the insured party if any covered losses occur.

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What is Marine Cargo Insurance?

Damage to Cargo: Protection against loss or damage to the insured cargo during transit by sea, air, land or a combination thereof.

General Average: Coverage for the insured's contribution in case a general average sacrifice is made to safeguard the entire shipment.

Theft and Pilferage: Protection against theft or pilferage of cargo during transportation.

Explosions: Protection against damages caused by fires or explosions while goods get transported.

Natural Disasters: Coverage for losses from disasters such as earthquakes, storms, floods and other catastrophes.

Collision and Accidents: Safeguarding against damages caused by collisions or accidents involving the transportation vessel or vehicle.

Jettison: Coverage for losses from throwing cargo to save the vessel during emergencies.

Sinking or Capsizing: Protection against losses due to the sinking or capsizing of the transporting vessel.

Non-Delivery or Partial Delivery: Compensation for losses when the entire cargo or a portion of it does not get delivered as per the shipping agreement.

What is Not Covered in Marine Insurance?

Fraudulent Acts: Loss resulting from dishonest acts or wilful misconduct such as false documentation and misinterpreting goods.

Inherent Vice: This refers to damage caused by the nature of the goods, not external factors.

Insufficient Packaging: Damage due to improper packaging that does not meet industry standards.

Delivery Delays: Losses incurred due to delays in delivering goods are typically not covered.

Consequential Losses: Indirect losses or economic consequences resulting from cargo damage or loss are often excluded.

War and Terrorism: Loss or damage due to acts of war, terrorism, or rebellion are not covered.

Nuclear Disaster: Damage caused by nuclear events and radiation will not be covered.

Reasons why you need Cargo Insurance

Let's explore why cargo insurance is crucial in global trade.

1. Managing Financial Risks: Cargo insurance plays a role in managing risks associated with potential loss, damage or theft of goods. Without insurance coverage, businesses could face setbacks that could potentially put their survival at stake.

2. Meeting International Regulations: Many international trade agreements and contracts require parties to have cargo insurance. Adhering to these regulations not only ensures transactions but also fosters trust among trading partners.

3. Protection Against Unforeseen Events: Despite planning, unexpected events can disrupt the seamless flow of goods. Cargo insurance acts as a safety net by providing protection against disasters, accidents and other unforeseen circumstances that may affect the transportation process.

4. Safeguarding Business Continuity: With cargo insurance in place, businesses can enhance their ability to maintain operations in challenging situations. In the event of damage or loss to goods covered by the insurance provider, the payout enables businesses to repair or replace them, ensuring a quicker return to normal operations.

Different Types of Insurance Policies

1. Open Policy: This type of policy is suitable for businesses that have regular shipments. It offers flexible coverage, eliminating the need for individual policies for each consignment, and covers the transit of cargo within India.

2. Specific Voyage Policy: Designed to cover a single journey, this temporary insurance contract provides customised coverage for the duration of a shipment. It ensures protection against risks that are unique to that voyage.

3. Annual Policy: With coverage throughout its validity period, an annual policy is a solution for businesses involved in frequent transportation activities.

4. Open Cover: This is an agreement between an insurer and a cargo owner or the company shipping the goods. It allows automatic coverage for multiple shipments within a specified timeframe, usually a year.

Conclusion

In today’s world of trade, cargo insurance holds significant importance, particularly marine cargo insurance. It serves as a safeguard for businesses by providing protection that allows them to confidently navigate the uncertainties inherent in global supply chains. As companies increasingly expand their reach across borders, understanding and embracing cargo insurance becomes not a choice but an essential step towards ensuring resilience and sustainability in trade.

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This contains only an indication of the cover offered. For complete details on risk factors, terms, conditions, coverages and exclusions, please read the sales brochure carefully before concluding a sale.ICICI trade logo displayed above belongs to ICICI Bank and is used by ICICI Lombard GIC Ltd. under license and Lombard logo belongs to ICICI Lombard GIC Ltd. ICICI Lombard General Insurance Company Limited, ICICI Lombard House, 414, Veer Savarkar Marg, Prabhadevi, Mumbai – 400025. . IRDA Reg.No.115. Toll Free 1800 2666. Fax No – 022 61961323. CIN (L67200MH2000PLC129408). customersupport@iciclombard.com. www.icicilombard.com. (Marine Insurance, 2005 , IRDAN115P0011V01200102)