Types of Cargo Insurance: All-Risk vs Named Perils

Transporting cargo across the ocean is always an unpredictable journey. Not only do you risk the lives of your employees or the people overseeing the trip, but there’s a chance you’ll lose your goods should an unfortunate accident occur—not to mention the costs of cargo theft and the negative effects it could have on your business.

In 2022, an estimated $223 million worth of possessions were lost through cargo theft—a 20% increase from 2021 reports. According to the statistical data, household goods such as appliances, furniture, tools, and toys were the most stolen items, followed by computers and television sets.

With cargo theft seemingly on the rise, cargo insurance can help cover costs in case of an accident or theft while in transit. There are two different types of marine cargo insurance, which we’ll delve into in a bit. For now, we’ll explain the difference between “risks” and “perils” and what this means in the insurance industry.

Let’s begin.

Hazards, Risks, and Perils: What Is the Difference?

While the words “hazards,” “risks,” and “perils” might be synonymous, they have different meanings in the context of insurance policies. These three terms typically confuse many policyholders, which is why it’s important to establish the distinction between them.

Hazards

“Hazard” could mean anything that leads directly to a loss or anything that increases its likelihood. For instance, the chances of someone getting hurt on your property while you’re doing construction work would be considered a hazard.

Although there are other types of hazards, physical hazards are what insurance inspectors look for when they assess your property.

Risks

“Risk” simply means that there is a possibility of a loss, and it can be categorized into what causes the risks and to whom it applies. There are different types of risks—some can be prevented, and some can be included under an insurance policy.

“Pure risk” is a type of risk that can be insured. It means that a situation presents either a possibility of a loss or no loss, and there is no chance of gaining something. Pure risk can be divided further into:

1. Personal risk: in which the possibility of a loss, such as an injury or death, affects an individual directly.

2. Property risk: in which the possibility of a loss affects a property, such as a residential or commercial one.

3. Legal risk: in which the possibility of a loss because of neglect, malpractice, or causing willful injury might result in a lawsuit.

Risk factors are used to determine insurance rates, so these directly affect your premiums. Simply put, the higher the risk, the higher your premiums could be.

Perils

Lastly, a “peril” is a direct cause of a loss or the source of it. For instance, your company-owned vehicle gets struck by lightning. The lightning strike in this situation is the cause or the peril. Subsequently, if your car catches fire, then the fire will be considered the peril. Essentially, perils are what you are insuring yourself from.

What Are the Two Types of Marine Cargo Insurance?

Now that we’ve covered the terms, it’s time to dive into the types of cargo insurance—specifically, all-risk cargo insurance and named perils insurance coverage.

All-Risk Cargo Insurance Coverage

There are many things that could possibly go wrong while you’re at sea, which is what all-risk insurance coverage is here for. This type of insurance covers loss from external causes, including physical damage or loss. It’s a comprehensive insurance policy that includes perils such as:

• Sinking;
• Burning;
• Stranding;
• Collision;
• Explosion;
• Heavy weather;
• Breakage or leakage;
• Non-delivery;
• Theft;
• And more.
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However, contrary to its name, this policy doesn’t cover all situations. Some exclusions could be:

• Intentional damage;
• Death of animals onboard due to natural perils;
• Loss by rats;
• Wear and tear; and
• Strikes, wars, or civil riots.

To get the full list of inclusions or exclusions, it’s best to speak to a reputable insurance broker.

When you opt for a shipping company to transfer your goods to and from your client, do note that shipping companies are not always held fully responsible for losses or accidents. This leaves you to tackle the unexpected costs on your own. So, before any catastrophic damage occurs, consider purchasing all-risk insurance coverage to secure your finances.

Named Perils Cargo Insurance Coverage

As the name suggests, named perils insurance coverage is a policy that covers the perils “named” in your policy. This means it’s less comprehensive than all-risk insurance coverage and limits the extent of your policy. In the context of marine cargo insurance, four named perils are usually covered:

• Burning;
• Sinking;
• Collision; and
• Stranding.

This policy only covers the loss of goods on board or damaged items while in transit. Much like the exclusions in all-risk insurance coverage, some exclusions of named perils insurance could be:

• Wear and tear;
• Springing a leak;
• Breakage of goods;
• Death of animals onboard due to natural perils; and
• Loss by rats.

The Importance of Marine Cargo Insurance

Sea shipping is dangerous and difficult, especially since the risks involved are unlike those you’ll face when you ship goods via land. With marine cargo insurance, you’ll be able to protect your business against financial losses.

This type of policy protects goods transported internationally and ensures that losses are covered should an unfortunate incident occur while the items are in transit. In some cases, marine cargo insurance is a requirement for international trade or by other laws applicable to the situation.

Protect Your Cargo With KASE Insurance

As cargo shipments increase due to the rise of online shopping, so does theft and other unfortunate incidents while in transit. This is why it’s essential to provide a layer of protection against financial losses and potential lawsuits for you and your business.

Ontario-based commercial insurance broker KASE Insurance is the leading choice for clients wanting to customize their insurance policies. Offering excellent customer-centric service and various types of cargo insurance, our team is here to help you curate reliable solutions to your business needs.

Contact us today to learn more about our services or get a quick quote!