Shipper’s Interest Cargo Insurance and

Other Vital Coverage Options for

International Transportation

Jason OdgersVP Business DevelopmentRoanoke Insurance Group

9/4/18

Outline

• Shipper’s Interest Cargo Insurance

– What is it

– Why is it important

– How much does it cost

– Where can it be purchased?

• Liability Exposures

– Cargo Liability

– Professional Liability

• Bonus Content: Tariff Increases & Bond Sufficiency

Cargo Insurance

What Is It

“First Party” insurance intended to indemnify the insured for physical loss or damage.

• Free of Particular Average (ICC-C)– Named Peril: Won’t pay partial damages unless the vessel is

stranded, sunk, burned or involved in a collision

– Catastrophic / Total Loss

• All Risk (ICC-A)– Named Exclusions: All risks of physical loss/damage unless

specifically excluded

Why Needed

1. Physical Loss/Damage

2. Theft & Pilferage

3. Piracy

4. Terms of Sale / Risk Transfer

5. General Average

6. Carrier’s Limits of Liability

#1 Physical Loss/Damage

#2 Theft: Heat Maps

“Target” Commodities

#3 Piracy: Facts & Figures

• Piracy attacks in 2017: 180

• 136 vessels boarded

• 6 vessels hijacked

• 22 attempted hijacking incidents

• 16 vessels fired upon

• 91 crew taken hostage; 3 killed

• Often motivated by terrorism

• Generally, commercial vessels do not maintain defensive weapons on board.

• Piracy reference sites:

– http://www.icc-ccs.org

– http://www.cargosecurityinternational.com

264

245 246

191180

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50

100

150

200

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2013 2014 2015 2016 2017

Attacks

Attacks

Live Piracy Map

#4 Terms of Sale: Incoterms

Terms of Sale / Incoterms

Terms of Sale / Incoterms

CIF: Cost, Insurance & Freight(Named Place of Destination)

The risk of loss or damage is transferred from the seller to the

buyer when the goods pass the ships rail at the port of loading

• Seller procures insurance against the buyers risk of loss of or damage

• Quality v. Price?

• Claims: Foreign Insurer / USD?

• Duty Paid on Insurance Premium?

• The seller is required to obtain insurance only on minimum cover

• FPA/ICC-C terms = Named Peril Only

Terms of Sale / Incoterms

FOB: Free on Board (Named Port of Shipment)

Risk of loss of or damage passes when the goods are loaded on

board the vessel at the port of export.

– Precarriage Exposure?

– Credit Terms?

#5 General Average

• Pre-dates cargo insurance

• Exceptional expenses which benefit all parties to the voyage

• Freight is seized and GA guarantee (Bond) must be posted to

claim freight.– Usually 8% - 12% of cargo value

– Flaminia concluded at 92% of cargo value

• Provided immediately by the insurer (when insured)

• If uninsured, cash must be posted by the cargo owner.

• Deposit can increase based on the final settlement/adjustment

which could take years.

Sample Calculation

• 50 million vessel value and $50 million of cargo on

vessel yields a $100 million voyage value.

• If a shipper has $1 million in cargo on the vessel he/she

is a 1/100 or 1% participant.

• $5 million in cargo (not the shipper’s) was jettisoned to

stabilize a vessel in a bad storm.

• The shipper is (initially) responsible for 1% of $5 million

($50,000).

#6 Carriers Limits of Liability

Ocean Carriers $500/CSU*

International Air Carriers $9.07/lb. or approx. $20/kg.

Domestic Airlines $.50/lb.

Truckers Limited; $.50/lb common

Rail Carriers Limited

Couriers (UPS, FedEx) $100 any one shipment

Warehouseman Limited

*Customary Shipping Unit

Ocean

The Carriage of Goods by Sea Act (COGSA) limits recovery to the lesser of the value of the cargo damaged or lost or $500 per “customary shipping unit.” Enacted in 1936 before the advent of containerization.

Exclusions•Acts of God (heavy weather, earthquake, lightning, etc.)

•Fire

•Theft

•Acts of War, Strikes, Riots & Civil Commotions

•Criminal acts or negligence by captain or crew

•Latent defect in hull or machinery

•Un-seaworthiness of vessel

•General Average

What Does It Cost

• Generally insured for Cost, Freight + 10%

• Rates applied “per hundred”

– Insured Value / 100 (Rate) = Premium• Example (single shipment)

– $113,300 / 100 = 1133 (.25) = $283.25

• Example (annual)

– $10,000,000 / 100 = 100,000 (.25) = $25,000

• Simplified

– $10,000,000 (.25%) = $25,000

Insurance premiums are fractions of %’s of the insured value

Where to Purchase

Insurance Company(Lloyd’s, ACE, TT Club, Travelers,

Great American, etc.)

Insurance Broker(Roanoke)

Transportation Intermediary

(OFF/NVOCC/CHB)

Cargo Owner(Large)

Cargo Owner(SME)

Liability Exposures

Common Carriers

• Liability for physical loss/damage prescribed (limited) by law/convention

• Declared in tariff (if applicable), T&C’s of service and contract of carriage

(bill of lading)

– Released Rate Doctrine / Declared Value

• Carrier liability insurance

– Addresses STANDARD liability

• Contractual Liability excluded unless approved by underwriters

– Protects INSURED from financial stress resulting from claims.

– DEFENSE Oriented

– Does NOT provide commercial consideration

• The carrier’s liability policy limit is NOT the same as their legal liability for

cargo loss/damage.

Intermediaries

Professional Liability (E&O) Insurance: Addresses claims that the insured’s error, omission or negligent act caused their client financial injury.

Quota Problem

5%

Failure to Obtain Duty

Drawback

1%

Improper Classification

of Merchandise

2%

Release of Cargo w/o

Original Documentation

23%

Cargo Released to

Wrong Party

2%

Loss or Damage to

Cargo24%

Misdirected Freight

8%

Delay/Late Delivery

8%

Negligent Selection of

Underlying Provider

6%

Failure to Follow

Instructions

9%

Documentation Error

13%

Tariff Increases & Bond Sufficiency

• CTB amount = 10% DTF’s for previous 12 months.

• When “saturated” USCBP will declare it “insufficient” and require

replacement with a larger bond

– Standard insufficiency = 15d

– Grossly insufficient = Immediate

• Results of insufficiency / increases

– Higher bonds = more underwriting requirements & increased premiums

– Bond amounts can not be amended, must be terminated & replaced

• Bond premiums are typically “earned” and not-refundable

• New collateral must be posted (old collateral not released)

– Goods can not be cleared without sufficient bond in place

• Be proactive

– Forecast volumes & DTF’s for NEXT 12 months and secure an adequate bond

NOW.

Thank you!

Roanoke Insurance Group Inc. is an Illinois, USA Corporation with its headquarters

just outside of Chicago. Established in 1935, Roanoke Insurance Group became a

subsidiary of Munich Re in 2008. We are a Managing General Agent for American

Alternative Insurance Corporation (AAIC) which is rated ‘A+’ (Superior) by A.M. Best

Company and is a subsidiary of Munich Reinsurance America, Inc. As an affiliate of

the Munich Re Syndicate Ltd. (a Munich Re owned Lloyd’s of London underwriter),

we also hold Lloyd’s of London underwriting and claims settling authority for surety,

marine cargo, professional liability and other related insurance—in addition to

brokerage capabilities through various insurance markets. Our primary client base is

in North America, but as we specialize in providing a seamless integration of

coverage for organizations that transport goods globally, our clients are located all

over the world.

Contact

Jason Odgers

VP Client Development

Roanoke Insurance Group

Jason.odgers@roanokegroup.com

843-724-7534