by Jason Odgers, SVP, World Insurance
A Vital Risk Management Tool
Cargo insurance is a vital risk management tool for cargo owners and, in some cases, affords a degree of protection for transportation intermediaries as well. In addition to the potential revenue associated with facilitating access to cargo insurance, transportation intermediaries should consider the less tangible risk management benefits they can gain.
A Perceived Professional Responsibility
Transportation intermediaries are widely regarded as experts in their field, and they are relied on by the cargo owner for their sound advice, particularly as it relates to risk of loss for cargo in transit.
Some cargo owners are unaware of exposures such as General Average, carriers’ limitation of liability, or how terms of sale can impact their ability to collect on a claim. Failure to advise the cargo owner of these exposures could be interpreted as a breach of the intermediary’s professional responsibility and could lead to a professional liability claim. For this reason, it is strongly recommended that shipper’s interest cargo insurance is offered to every client and a record of their response is maintained in the client’s file for future reference.
Mitigates the Risk of Adverse Claims Negotiations
Providing access to cargo insurance may also reduce the frequency of cargo legal liability claims against the intermediary. Many forwarders and brokers conduct related operations as Non-Vessel Operating Common Carriers (NVOCCs) or indirect air carriers (IACs), and cargo is often moved under their house bills of lading. In these situations, the NVOCCs or IACs typically have a limited responsibility for cargo loss or damage while in their care, custody or control. When an uninsured cargo owner experiences a loss in transit, their only recourse is to pursue a liability claim against the carrier (NVOCCs or IACs); however, when a cargo owner is insured, they will instead file a claim with their cargo insurer, consequently reducing the potential commercial impact of adverse liability claims negotiations.
Mitigates the Risks of Lost Receivables
Cargo insurance can also contribute to protecting assets for the intermediary; specifically, when an intermediary extends credit terms to a client and they assume the role of an unsecured creditor. Even a credit-worthy cargo owner can be adversely affected by a large, uninsured loss, which could compromise their ability to settle their debts. In a worst-case scenario, an uninsured loss could force a cargo owner into bankruptcy, which would leave the intermediary little or no options for collection. This exposure is further exacerbated when the intermediary has “fronted” freight charges to underlying carriers on the shipper’s behalf. In this scenario, providing cargo insurance can reduce the risks of unrecovered debts resulting from uninsured cargo loss.
Tangible Profits and Much More
Intermediaries are strongly encouraged to provide their clients cargo insurance not only as a potential revenue stream, but also as a formidable risk management tool. A formal practice to address cargo insurance should be followed with each client prior to the routing of any freight. By following this practice, the intermediary can benefit from tangible profits and the less tangible benefits of respite from liability claims and lost receivables.