5.8 – Insurance Claims

The whole purpose of being in business is to trade items for a profit and this may not be possible if the trading items get lost or stolen before getting to their destination.

Unfortunately, both seasoned and novice businessmen often forget this basic fact and pay the ultimate price. When you fail to take out cargo insurance for your import or export shipment, you are in fact setting yourself up for disaster.

Reasons for Export/Import Goods Insurance

Even though import insurance cost might be considered expensive by many traders, the import export trade domain faces certain issues that are not encountered anywhere else and that make it essential to take a suitable sort of cover to mitigate inevitable loss:

1. Limited Liability Clauses

Courier services that operate air and ocean freight services do not extensively cover your consignment while it is in transit.

Foremost, they do not cover natural disasters and general averages. Additionally, for those situations that they actually provide cover, they have limited liability which means that even if you were to get paid you would not receive the full worth of your consignment if the inevitable actually happens.

This implies that in order to avoid getting paid in cents in case of loss, it would be much cheaper and more convenient to get insurance cover for your export shipment.

2. Mandatory Requirement

In some cases, for example CIF shipping, it is a legal requirement for you as the seller to take out an export insurance policy for the consignment in order to protect the interests of the buyer as well his bank.

This implies that if you are operating under such a contract, it would be a major violation not to take out a policy which could lead to legal battle or even the loss of the particular deal as well as the client for life.

Note that the CIF price and risk transfers to the buyer as soon as goods are loaded on to the ship or flight and that any contravention of its terms would return the risk to you as the supplier.

3. Loss Probability Reduction

This one works both ways, such that in case you as the exporter have not paid insurance of export shipment and have not been paid for the goods or as the importer, you have paid for the goods either in part or in full but they are not insured, in case some sort of damage or loss befalls the goods then you will without fail suffer major financial loss.

4. Additional Control

While the issuer of a consignment might claim to have import cargo insurance taken out and paid for, the best way to exercise full control is by taking the responsibility personally.

This is the only way to ensure that the valuation of the goods is done properly and that the terms of the insurance package are actually viable.

5. General Average

The speed at which goods are released to you on a general average agreement might depend on you having taken out marine insurance for export goods.

The general average requirement stipulates that in case of loss or damage, the two parties to the transaction will share the loss equally. Taking out this kind of insurance would imply that your insurance company undertakes this loss and ensures the fast release of your goods.

Types of Cargo Insurance

In view of these points, it is actually very important that you take out an insurance policy for your import/export consignment. But what kinds of insurance covers are available to offer these benefits? Let us take a look at a number of major options:

1. Export Credit Insurance

This kind of policy offers you protection in case your foreign client fails to make payment for goods. This is important if for any reason a buyer is unable to honor his side of the agreement. This is one major obstacle that prevents new traders from venturing out onto the international trade domain regardless of its limitless advantages over most other existing forms of trade.

This extremely popular policy therefore ensures that you do not have to hold back from enjoying the rewards that come from this type of trade by virtue of fear of failure. It provides a cushion against which to fall back and rise up when the worst happens.

The cover offers you the opportunity to avoid a potentially hazardous situation by giving you information on the buyer’s credit record and general financial history report. The insurer thus undertakes to recommend the buyer and endorse his capability to make payment. In the rare case that the deal turns sour, the insurer pays between 80 and 90% of the total amount owed in case of loss.

2. Marine Insurance

Contrary to the implication behind this name, marine insurance for export goods is not only limited to consignments that are transported over the sea.

It is a complex package that provides a cover for goods from the moment they leave the supplier’s hands to the point they are handed over to the buyer.

There is so much that could go wrong between these two points as the consignment moves from the factory to the courier’s storage facility, to the selected mode of transport all the way to the buyer. This is the best form of freight insurance to take care of all these terminals and ensure safe delivery of the goods to the client.

3. Political Risk Insurance

This is a particularly important type of insurance cover for traders dealing with emerging economies.

These countries are usually highly prone to interference by governmental authorities that could result in the confiscation of goods or failure to get payment for them. Such governments inadvertently pass laws that might result in blocking the normal channels of money transfer out of the country or even the expropriation of business assets.

This insurance covers against the risks that may result from political instability for instance war, upheavals or riots that might lead to loss or damage. It also covers unavoidable factors that may invalidate your claim to business within the country for instance the cancellation of your trading license, direct foreigner discrimination that serves to favor local entities and crush the rest or government contracts that are not honored when political unrest takes center stage.

The political risk insurance policy is extremely important because these emerging economies offer the most viable and ripe markets for trade yet business people shy away from them because of the inherent risks associated with them. This makes it possible to cover your bases while exploring these opportunities at no risks.

4. International Product Liability

What happens when the goods you ship to your business destination fail to match up to the local legal requirements or are in fact faulty? Simple, you either suffer loss or recover your investment through international product liability insurance.

However, this cover does not apply to traders who simply failed to do their homework and ended up in a tight situation. It is only applicable when you have conducted all due diligence and initiated a transaction armed with information but somewhere along the way some policy detail was amended and now your goods can no longer be accepted into the destination country.

It is essential to comply with all requirements in order to ensure that in case such a tragedy actually does befall you, you can prove beyond reasonable doubt that you had made every effort to comply and that the complication only arose after the transaction mechanisms had already been set into place. That is the only way to guarantee compensation from this insurance cover.

5. Currency Conversion Insurance

A major factor that at times leads to great losses for international traders is foreign exchange conversion loss. The conditions that might have been in play when a transaction was initiated might take quite a turn and leave you in the height of despair. This form of insurance mitigates against any losses that may arise from the negative effect of currency movements.

This is highly essential because there is no way to predict future performance of any currency and the slightest trigger could result in a huge and unexpected change that spells massive loss to an international trader.

Important Insurance Considerations

  • The kind of insurance cover you undertake will depend on your personal preference. Many business owners choose to ask for 110% of the total value of the transaction. This value covers everything including the courier charges and import insurance costs and includes that extra 10% to cater for the time wasted and any expenses that may arise from filing a claim. Do not leave these details to chance as they might spell doom in case the cover taken only allows for a small fraction in compensation or if the claim takes months to settle.
  • Determine the amount of control that you need in the worst case scenario. On the terms of sale for most transactions, the supplier’s liability ends at the point where the goods reach the buyer. In some cases, the buyer agrees to pay for the goods as soon as they arrive. This makes it easier for you as the supplier and could mean that the buyer has a greater need for the insurance than you do. Take advantage of such a scenario. But in case the cargo is being shipped open account, it is up to you to go to any length possible to secure the goods and cover your risks appropriately. Be sure to let the client know his responsibility in reporting any damages as soon as the shipment arrives and not tampering with evidence so as to ensure the claim is settled.
  • It is not automatic that the supplier should always pay for the insurance policy. You could negotiate with your customer on this as they sometimes agree to foot the cost. It is also possible to find a way to share costs depending on the effect of this cover and other factors considered by each party.
  • There are important documents that should be prepared and retained for the entire duration of the transaction. These are very useful for creating a paper trail that would come in handy as evidence in case you need to file a claim.

Important Insurance Documents

While there are numerous types of insurance documents in the import export insurance policy, the following are some of the most crucial ones:

  • The Insurance Policy – this contains the terms and conditions under which the insurance contract is executed.
  • The Broker’s Note – this is the document that you get as proof that a policy has been taken out as you wait for the processing of a certificate.
  • The Certificate of Insurance – this is also referred to as the cover note and it serves as proof of the existence of cargo insurance for your import or export.

Making an Insurance Claim

If the parcel reaches its destination damaged or it doesn’t reach it at all. You should take immediate action and start with an insurance claim.

Where to start from?

Documents Required to start a claim procedure

Where there are damages the procedure begins as soon as the case is brought to the courier company’s attention.

The documents that the courier company usually requests are:

  1. A form that you need to fill out. In the form, the following information is required:
  • List of the damaged items and their value (you need to tally up the total loss);
  • The address to which the courier can inspect and, if necessary, take the damaged items;
  • The method of packing;
  • Proofs of damage, such as photos;
  • The exterior damage of packaging;
  • The interior damage of packaging.

2. Confirmation of the handling of the parcel to the courier driver. A signed statement that the parcel was collected in case of missing proof of collection.

3. Damage protocol. In the case of external damage (on the packaging, like the cardboard box), a file needs to be filled in the presence of the courier driver, at the moment of receiving the parcel.

4. All the invoices of the damaged goods. In case the invoices are missing, you need to sign a statement confirming the estimation you made for the value of the goods.

5. A signed statement that the parcel was not insured through other insurance companies. The form that has to be filled in case of a lost package requires the same information, except the Damage protocol and the photos of the parcel (if they are not available)

Reasons Insurance May Be Declined:

  • Inappropriate packaging;
  • Unconventional shipments – items which are totally forbidden or restricted;
  • Items which are not recommended without previous notice to the courier company;
  • Damages caused by terrorism, natural disasters; or,
  • Customer’s violation of the courier company’s Terms and Conditions in any way.

What may hinder the insurance claims procedure

In order to start a claim procedure, you need to prove the negligence of the carrier.

This means that you need to show that the delivery was not carried out according to the courier company’s Terms and Conditions. This is not very easy to do when the customer opens a claim for a missing parcel. Unless you have taken pictures of the content of the package before it was shipped, it is hard to prove that a certain object is actually missing.

Failing to send the claim promptly, within the deadline imposed by the courier company. 

Usually, a claim needs to be received within 7 days of the parcel being received. However, this depends on the terms of the courier company. It is crucial to check this information in advance to ensure that the claim is not considered null and void.

The duration of resolving an insurance claim

A claim procedure involves correspondence and accounting. This translates into administrative work. Since the entire process is complex, there is no exact duration for the conclusion of a claim procedure.

Courier companies and insurance companies give a general term for resolving an insurance claim, based on the average time spent on previous cases. In general, depending on the complexity of the caseit might take up to 3 months to have a final resolution.

Useful advice for placing an insurance claim

  • Keep all the documentation that was provided by the courier company from the very beginning;
  • When giving a description of the parcel or the content, try to give as many details as possible, even if they might not seem relevant to you;
  • Take many pictures to get as much detail as possible; don’t hesitate to film a video;
  • Until the claim is not approved, don’t discard any packaging or goods that arrived damaged;
  • Notify the courier company right away, even if you didn’t have time to fill in all the forms and gather all the supporting documents;
  • When it arrives at the destination, the shipment must be inspected thoroughly on the outside. The customer has to make sure that the external condition of the package is in good order;
  1. If the consignment has damage externally that is visible a report should be completed together with the courier responsible for delivering the parcel. The form should include all details in relation to the damages including all breakages, exposed products, opened packaging, wet or damp cardboard etc.

Speak With One Of Our Experts

When it comes to the import export trade, the enticing rewards do not come easy as the domain is marked by its fair share of booby traps. The amount of effort and financial input that you invest into your company might all come to naught in a single blow from an unexpected source. This makes it crucial to partner with an expert who will guide you in this risky terrain and ensure you avoid all forms of risk as much as possible while advising you on the kind of business insurance for export shipments that would best suit your line of trade.

If you would like to speak to one of our experts. Contact us today.