SHIPPING: Review Your Insurance
Recent Western Cape Business News
THE cost of importing and exporting cargo is on the increase. Freight costs are going up as are port dues and in some instances, import duties. In order to ensure adequate compensation in the event of a loss, marine cargo insurance sums insured need to keep pace.
An important aspect of any marine cargo insurance policy is the Basis of Valuation (BOV). This is the basis agreed upon between client and insurer to determine the calculation of cargo declarations. Ultimately, it is the basis upon which settlement will be made in the event of a loss.
A typical BOV for imported goods could be ‘Delivered cost at final destination plus 10%’. In this example insurers would expect the assured to declare all insured shipments for a sum that includes all the costs incurred up until delivery to the clients warehouse (i.e. purchase price of the goods plus freight costs plus duties plus any other ancillary costs) all plus 10%.
The additional 10% may represent the lost opportunity costs in the event of a claim that necessitates the reimportation of the goods. Similar considerations apply in respect of exports.
The BOV applicable under a marine cargo insurance policy is (within reason) set by the assured. The underlying principle is that of equity – insurers are happy to pay claims on whatever reasonable basis the assured deems appropriate, on the understanding that they will receive declarations (and premium) that have been calculated on the same basis, says Grant Fugard, senior manager - marine for Alexander Forbes Risk Services in Cape Town.
With this in mind, it is always useful to review the BOV to ensure adequate claims settlements.
Policy limits represent the maximum amount that insurers will pay in the event of a loss, notwithstanding the BOV. It is therefore imperative that conveyance and/or location limits set are adequate.
The conveyance limit should represent the maximum possible exposure on any one particular conveyance (e.g. 10 containers of the highest valued product all on one vessel).
The location limit should be at least double that of the conveyance limit to take into consideration the possible accumulation of goods at any single location (e.g. a container depot).
Insurers apply a rate to the declared value to arrive at the premium payable. The BOV therefore plays a role in the premium paid and can be tailored accordingly. The rate is determined by insurers’ assessment of the risk which can be influenced by various factors such as:
• Nature of product
• Origin and/or destination of goods
• Means of conveyance and route travelled
• Packaging (e.g. cartons, containerised, breakbulk, FCL or LCL)
• Transhipments and /or temporary storage
• Sums Insured
• Past claims history.
Policy limits do not generally influence the premium unless they are abnormally high, Fugard says.
Insurers will pay claims in accordance with the BOV. However claim payments will usually exclude any costs not incurred (e.g. import duties should the loss occur prior to the goods reaching the country).
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