For many years, cargo insurance policies have protected businesses from catastrophic financial loss in the event that their shipped cargo gets lost, damaged, or stolen during transit. The process of shipping goods has many stages and various points of handling. Therefore, unforeseen events can definitely happen at any point - whether the goods are on the containership, on a plane, or loaded on a semi-trailer truck. Even on regular days, the process is fraught with risks.
So when the global pandemic of COVID-19 stepped into the scene early in 2020, businesses that rely on cargo shipping quickly felt the impact. Various restrictions and new protocols forced the processes to slow down or change, resulting in crippling delays. The physical evidence can be seen in the amount of container ships that were idled around the world - far greater than during the global financial crisis.
If you’re business relies on selling or buying shipped goods, you might be unsure about how to manage risks during uncertain times. Well, you’re definitely in the right place - because in this article, we will take a closer look at the impact of COVID-19 on the cargo industry, what this means for the future of cargo insurance, and more
So let’s get started with a few fundamentals about cargo insurance.
What is Cargo Insurance and Why Do Businesses Need Them?
Cargo damage and loss is a reality of shipping. And when it hits, a business owner can be left wondering how they will be compensated. In cases like this, relying on carrier liability alone is a big mistake that some businesses realize too late. Oftentimes, carrier liability coverage is far less than actual value of the freight - and that is, if you receive any compensation at all. To receive compensation, you will first need to prove that that carrier is at fault for the damaged or lost goods - meaning loss or damage due to certain accidents, natural disasters, war, and the like are typically not covered. It’s no surprise that 50% of freight claims are denied by carriers. In fact, carriers can and will do all they can to minimize their liability or avoid it altogether. This is where cargo insurance steps in and saves the day.
Cargo insurance, also known as freight insurance or goods-in-transit insurance, is a form of commercial insurance policy that provides coverage for physical damage or loss of goods during the shipping process. With this insurance policy, all you need to show is that your shipped goods were damaged or lost - it does not matter if it’s the carrier’s fault or not. There are different coverage levels that answer the specific needs of every business - such as land cargo insurance, marine cargo insurance, open cover cargo insurance, and specific cargo insurance. If you want to learn more about these types of coverage, check out this page.
Having cargo insurance will help give you peace of mind in cases like the following:
- The containership was not seaworthy to begin with and sinks at some point before your goods were delivered
- The crew on the containership are negligent and did not secure your cargo during a storm
- A fire broke out on the transport vessel and damaged your goods
- The transport vessel gets involved in an accident and severely damages your goods
- Your goods are stollen at any point during transit
How Did COVID-19 Impact the Cargo Industry and Did Cargo Insurance Policies Provide Coverage?
All kinds of businesses encountered their unique set of challenges caused by COVID-19. For businesses that rely on the shipment of their goods, they faced challenges such as the following:
- Because of border closures and restrictions, goods in transit were delayed or stopped before reaching their destination.
- Because of lockdowns and new protocols, some ports do not have enough people working at a time, causing the ports to be unable to receive cargo at the same rate.
- Because of lockdowns and new protocols, some warehouses are slowed down and have so much backlog that they cannot accommodate more goods, causing some cargo to be redirected to another port.
These delays and changes in the process resulted in one or more of the following:
- Lost income because of the delays
- Time-sensitive goods damaged because of the delays
- Additional costs for needed temporary storage, reloading, and reshipping
So did most cargo insurance policies provide coverage for the above unforeseen circumstances? Unfortunately, the short answer for this is no. Typically, cargo insurance will not cover the additional costs, loss, or damages associated with delays caused by COVID-19. However, if the goods become damaged or lost because of a covered peril amidst the delay, this can be a coverage trigger for most cargo insurance policies.
What Do These Impacts Mean for the Future of Cargo Insurance?
COVID-19 has challenged many businesses to rethink how they respond to a crisis of such magnitude. For businesses that rely on shipping, the experience has definitely made them see and/or experience the limitations of their cargo insurance policy. It’s highly likely that such limitations caused strains in relationships between insurance providers and the businesses they serve.
Clarity is the most obvious and immediate insurance-related need during these times. Insurers are already clearly defining the words “pandemic” and “disruption” in their policy triggers. Businesses can expect to see more transparency in this area - and if not, it simply wouldn’t be an acceptable practice during these times. COVID-19 has pushed business owners and leaders to seek such information more proactively.
What remains to be seen, however, is if commercial insurance providers will respond by modifying their policies to cover additional costs, damage, or loss due to delays.
What Steps Can I Take to Manage Risks for My Shipments?
Getting the right cargo insurance policy is still a must. Though most policies are limited when it comes to COVID-19-related delays, this type of insurance policy will still help to mitigate other risks. Furthermore, it might not take long for cargo insurance policies to eventually evolve according to the needs of the times.
What your business needs right now is utmost transparency and the latest updates when it comes to innovative changes in commercial insurance policies. This is exactly what we offer here at KASE Insurance. We take a customer-centric approach to everything. Together, we can put together a cargo insurance policy that is transparent and custom-fit to the needs of your business even during uncertain times.