Everything about export cargo insurance

The risks and threats in business double the importance of export cargo insurance, but why does export business need insurance? What is the importance of export goods insurance in international trade? How to insure export cargo? Does export cargo insurance last? In this article, we want you to discuss the importance of insurance in international trade, the reasons for the need for export cargo insurance during transportation, after, etc.

The risks and threats in business double the importance of export cargo insurance, but why does export business need insurance? What is the importance of export goods insurance in international trade? How to insure export cargo? Does export cargo insurance last? In this article, we would like to discuss the importance of insurance in international trade, the reasons for the need for export cargo insurance at the time of shipment, afterwards, etc.

If the goods are damaged during transit from the port of dispatch to the point of destination, the exporter may incur financial loss. To protect against loss, the exporter may be required to take out an insurance policy to protect him against physical damage to the goods. Here, the importance of “export cargo insurance” is clear. If the goods are transported by sea, this insurance is known as marine cargo insurance. In case of air transportation, the term air cargo insurance is used. However, in practice, export cargo insurance is used interchangeably with both terms and their provisions are specific.

The need for insurance is mainly felt for two legal and commercial reasons. The legal responsibility of intermediaries is limited. Intermediaries include clearing and forwarding agents, port authorities, customs, etc., who handle the goods at various stages. If the damage is caused by circumstances beyond their control, or if the damage is done despite their reasonable care, they do not bear any responsibility. In the case of sea shipment, their legal liability is currently limited to 100 pounds per package and in the case of air shipment, the airlines’ liability is currently limited to $16 per kilogram, as amended from time to time. It is quite natural that this amount of compensation will not compensate the damages suffered by the exporter. At the time of post-shipment financing, banks also insist on insurance coverage to protect their financial interests.

Insurance is required even with regard to business considerations. As soon as the goods are damaged, the importer may not accept the payment of damages, while the loss incurred may not only involve the shipment of the goods, but also the loss of profit.

What is meant by export cargo insurance or international transport?

One of the most important types of international insurance is export cargo insurance, which has a very important role in the export of goods, and without the support of this insurance policy, doing this will be very risky. The insured and the insurer are among the parties of an insurance policy document that must adhere to various obligations towards each other. It should be noted that the insured person can be one of the natural or legal persons who engage in trading and exporting goods. On the other hand, insurers are insurance companies and institutions (legal entities) that continue to operate in the field of insurance. Based on these obligations, the insured party is obliged to make efforts to compensate the damage and pay the equivalent amount if any damage is caused to the insured’s goods. In fact, the insured person intends to insure the transportation of his goods from one point to another. Among the different types of transportation insurance policies, we can mention export, import, domestic, transit, etc. cargo insurance.

Due to the very high risk of international transportation compared to domestic transportation, export cargo insurance is very important for exporters. Among the risks threatening export cargo, we can mention the possibility of fire, theft, accident, war, etc. In addition, export cargo insurance is mandatory for most traders. Therefore, in this post, an effort has been made to let you know more about export cargo insurance. It should be noted that it is possible to issue insurance policies for different types of land, sea and air transportation.

Export cargo insurance policy

The term international cargo insurance, popularly known as export cargo insurance, applies to all types of shipping. The need for export (or import) cargo insurance often varies from exporter to exporter (or importer to importer) and from shipment to shipment. As long as the insurance is not compulsory in commercial terms, the exporter or importer can not insure the goods against the risks threatening their business.

Depending on the international trade conditions, the seller (exporter) or the buyer (importer) is responsible for cargo insurance. The seller is obliged to insure the shipment in terms of CIF and CIP. The seller may choose not to insure the cargo at his own risk in terms of DDU and DDP. The trade terms DDU and DDP are often used in key projects where the target value is high. In practice, the seller usually insures the cargo under the terms DDU and DDP.

Proof of insurance coverage is contained in a document known as an insurance policy. The format of the policy forms varies from insurer to insurer, but they all basically contain the institution clauses and the same information found in the Insurance Policy Instructions (IAI).

The insurance policy must be issued and signed by an insurance company or its representative. If more than one original copy is issued and this is stated in the insurance policy, all of them must be presented to the bank, unless otherwise allowed in the letter of credit (validation).

In certain countries, the insurance agent (broker) may deliver the policy to the issuer within 4-5 hours of receiving the policy instructions (IAI) or similar form. However, in some countries the policy is mailed to the issuer 2-3 days after receiving its instructions. Due to the fact that e-mail may take 4 days or more to reach the addressee in some countries, the deadline to reach the last date of L/C negotiation may not be met.

What are the types of export cargo insurance clauses?

According to the amount of risk coverage, insurance policies can be divided into different types. Export cargo insurance clause is one of the terms that is very important to be familiar with, as many traders and exporters tend to get familiar with this term. In the following discussion, the definition of cargo insurance clause will be discussed.

As you know, export cargo insurance is for the purpose of insuring the shipment of goods originating in Iran and destined for foreign areas. Due to the wide range of risks for cargo and the possibility of damaging them, the extent of the companies’ obligations should be known to the insured. For this purpose, the relevant conditions and standards have been determined in collections called clauses of commodity insurers, which are approved by all global markets. Iran’s Supreme Insurance Council has also determined these rules and regulations in Regulation No. 79. It should be noted that this source is accepted as the only official source of export cargo insurance obligations in Iran and all export cargo insurances should be issued according to them.

According to the existing definitions, the cargo insurance clause determines the amount of compensation for damages, risks threatening the goods during their transportation period. It should be noted that these risks can be created in different forms and types. Export cargo insurance clauses can be divided into types A, B and C, which cover damages such as damage to the goods due to falling into the sea, fire, explosion, overturning, accident, earthquake, volcano, storm, drowning, pollution of paint and materials. They compensate for chemical, crushed, spoilage, decay, etc. Some insurance clauses cover more risks and others less risks. Clauses A and B will insure and compensate for the highest and lowest risks, respectively. Hence, Clause A is more expensive than other types of export cargo insurance clauses. You can purchase the appropriate insurance cover based on the possible risks for your cargo and its type.

Among the risks covered by cargo insurance clause C, the following can be mentioned:

• Occurrence of accidents such as fire or explosion.
• The collision of the ship with the bottom of the sea, sinking in the mud, sinking, overturning or any kind of floating in the sea water.
• Overturning or leaving the main line of ground transportation.
• Accident, or any collision of the ship with other means of transport and foreign objects other than water.
• Emergency unloading of goods in ports
• Damage to goods during public accidents.
• Throwing goods into the sea in order to lighten the ship when necessary

Among the risks covered by export cargo insurance clause B, the following can be mentioned:

• Occurrence of events such as fire or explosion, lightning, earthquake, volcano
• The collision of the ship with the bottom of the sea, sinking in the mud, sinking, overturning or any kind of floating in the sea water.
• Overturning or leaving the main line of ground transportation.
• Accident, or any collision of the ship with other means of transport and foreign objects other than water.
• Emergency unloading of goods in ports
• Damage to goods during public accidents.
• Throwing goods into the sea in order to lighten the ship in times of need (or dropping goods from the deck of the ship into the sea
• Entering water from different types of water bodies, such as the sea, river, or lake, or into ships and containers for transporting goods.
• Damage to any part of the goods as a result of falling during loading and unloading into a ship or vessel

The risks covered by the cargo insurance clause A are as follows:

It can be boldly stated that export cargo insurance A is the most complete type of insurance that covers almost all threats (except for the exceptions mentioned in the following article) of transporting the insured goods.

Exceptions related to export cargo insurance

In addition to the stated contents, there are also exceptions that are the same for different export cargo insurance clauses, including types A, B and C, and are as follows:

• The cost of any damage and intentional damage related to the cargo subject to export cargo insurance
• Any reduction in weight and volume, leakage, rotting or wear and tear of the insured product by the insured person.
• The cost of damages caused to the goods due to improper and insufficient packaging
• Damage and loss due to the inherent nature of the insured product.
• Damage, loss and expense due to delay
• Damage, loss and expense caused by the bankruptcy of the owner, manager, lessee or operator of the ship.
• Damage and loss of cargo due to the use of any weapon or device related to atomic energy

It should be noted that the following items are not covered by insurance:

• Inability to safely transport the insured goods due to the inappropriateness of the ship (floating)
• Unsuitability of means of transportation (containers) for the safe transfer of insured goods
• The existence of any civil war, rebellion, uprising, etc.
• Occurrence of any arrest, confiscation and seizure of property (except for pirates) or events resulting from these matters.
• Abandoned war weapons and leftovers from other wars such as bombs, mines, torpedoes, etc.
• Occurrence of disturbances and internal conflicts, workers striking and closing the workplace.
• The occurrence of terrorist operations in different forms

We provided explanations about the reasons for export goods insurance in international trade. Do you want to add more reasons to insure goods under import export business? You may have experienced the importance of export cargo insurance in international trade during your career in the export business. Share your experience with us about the importance of export transport insurance under international trade.

Did you like this article on the importance of insuring export goods and the reasons for insuring goods under international trade? Below, express your views on this topic in international trade, why should we insure the goods under export-import?