Cargo insurance basics for importers

Most shipments arrive without incident. The few that do not can cost a buyer the full value of the goods, and sometimes more. Cargo insurance is the low-cost protection against that outcome, yet it is often left to the last minute or assumed to be someone else's job.

This guide covers the essentials. It is general information, not insurance advice. Policy wording, exclusions and premiums differ between insurers and markets, so discuss your cargo with a licensed insurer or broker.

Why the carrier's liability is not enough

Many first-time importers assume that if a shipping line loses or damages their goods, the line will pay. In practice:

• Carrier liability is limited. International conventions and the carrier's own terms cap compensation, typically by weight or by package. The cap can be far below the value of the goods.
• Carriers have defences. They are not liable for a range of causes, and proving that the carrier was at fault takes time.
• Some losses are nobody's fault. Storms, fires and groundings happen without negligence.

Cargo insurance pays the insured value according to the policy terms, without your having to prove who was at fault.

Who should insure: follow the risk

The party who bears the risk at each stage has the interest in insuring it. Your Incoterm tells you where risk passes.

Only CIF and CIP oblige one party to insure. Under every other rule, insurance is optional under the Incoterm, which in practice means it is easily forgotten. Our guide to Incoterms 2020 explains where risk passes under each rule.

The Institute Cargo Clauses

Most marine cargo policies worldwide are based on the Institute Cargo Clauses, a set of standard wordings. There are three main levels.

All three cover general average and salvage charges, described below.

"All risks" does not mean everything. Under all three sets of clauses, typical exclusions include:

• loss caused by the wilful misconduct of the insured,
• ordinary leakage, ordinary loss in weight or volume, and ordinary wear and tear,
• insufficient or unsuitable packing,
• inherent vice, meaning damage arising from the nature of the goods themselves,
• loss caused by delay, even if the delay was caused by an insured event,
• insolvency or financial default of the carrier, in defined circumstances.

War and strikes risks are excluded from the main clauses and are normally added through separate Institute War Clauses and Institute Strikes Clauses.

Under Incoterms 2020, a CIF seller need only provide cover at the level of clauses (C), while a CIP seller must provide clauses (A), unless the parties agree otherwise. If you buy CIF and want wider cover, say so in the contract. See FOB vs CIF.

General average: the risk few buyers know about

General average is an old principle of maritime law. If part of a ship or its cargo is deliberately sacrificed, or extra expense is incurred, to save the whole voyage from a common danger, the loss is shared among all parties with an interest in the voyage, in proportion to the value of their property.

This means you can be asked to contribute even if your own cargo arrives undamaged. Your goods will not be released until security is provided. If you are insured, your insurer normally provides the guarantee and pays the contribution. If you are not, you must put up the security yourself.

How much to insure for

The usual practice is to insure for the CIF or CIP value of the goods plus 10 percent. The extra covers costs and margin that would otherwise be lost. Incoterms 2020 sets this 110 percent figure as the minimum where the seller must insure. You and your insurer can agree a different basis if your costs justify it.

Types of policy

• Single-shipment (voyage) policy. Covers one consignment. Suitable for occasional importers.
• Open cover or annual policy. Covers all shipments within agreed limits over a period, with each one declared. Suitable for regular importers and usually simpler to administer.

Cover normally runs from warehouse to warehouse, but the exact start and end points are defined in the policy. Check that they match your Incoterm and your actual route, including any storage on the way.

If cargo arrives damaged or short

1. Note it on the delivery receipt. Do not sign for goods as received in good condition if there are signs of damage.
2. Notify your insurer or its named survey agent immediately, and follow their instructions.
3. Give written notice to the carrier and hold it responsible. Time limits for notice are short, often a matter of days, so do not wait.
4. Limit further loss. Protect the goods from more damage, but keep the damaged goods and the packaging for the surveyor.
5. Take photos of the container, seal, packaging and goods before and during unloading.
6. Assemble the documents: insurance policy or certificate, commercial invoice, packing list, bill of lading, delivery receipt, survey report and your correspondence with the carrier.

Planning a shipment?

When you request a quote, tell us the Incoterm you prefer and whether you want insurance included in the price. We will set out the options so you can compare them.