It’s no surprise to anyone who works in the supply chain field that shipping goods from place to place is getting riskier. A myriad of factors impact shipping, including higher costs of ocean freight, labor shortages, and a growing incidence of pilferage and theft of goods in transit or at rest in warehouses. This hasn’t escaped the notice of insurers, many of whom are forced to charge higher premiums for insureds that don’t take steps to improve their risk profiles.
For many companies, risk management methods such as cargo monitoring with response must be employed to ensure cargo gets to its destination in one piece, or even at all. These methods may allow the shipper to insure the cargo at a reasonable cost and broad terms.
What is cargo insurance?
Carrier liability vs cargo insurance coverage
At the most basic level, cargo insurance protects your organization financially from in-transit losses. Relying on motor carriers, air carriers, or vessel’s legal liability alone isn’t always the right choice. Legal liability insurance is unlikely to cover the total value of your cargo and will have specific exclusions leaving you without coverage. You’ll have to prove carrier liability to pay out a claim, and even then, it may take longer to pay out and resolve.
Conversely, all risk cargo insurance will get you the insurance coverage you need, while lowering your total cost of risk.
Why cargo insurance is vital for your organization
Due to climate change, economic instability, and political upheaval worldwide, supply chains are facing more risks than ever. These risks are further amplified by supply chain crunches – making the cost of a loss more expensive due to shortages of raw materials or manufacturing shutdowns further delaying shipments.
Risks also take many forms for goods in transit. Theft, pilferage, damage and destruction of goods are issues that every company needs to bear in mind. To give some examples:
- Cargo theft losses in the U.S. and Canada rose 15% between 2021 and 2022.
- Cargo theft rates of valuable goods have also increased, with electronic theft having a reported rise of 56% in 2021 with an average loss value of $407,247 per incident.
- The winter of 2020-2021 was disastrous for ocean shipping loss rates, with 3,000 containers being lost overboard, more than double the average loss rates for the past 12 years.
In the face of risks like these, carrying the correct cargo insurance coverage is imperative for any organization who wants to avoid the financial impact that the loss of goods or materials could cause for them. At the same time, it’s important to remember that you don’t just need insurance, you also need a strong risk management plan.
The relationship between risk, costs, and cargo insurance coverage
Insurance isn’t always about coverage, it’s also about cost. Organizations that take the proper precautions to ensure that their cargo is monitored and shipped in a risk-averse manner may enjoy lower premiums and broader coverage terms than those companies who cross their fingers and hope for the best. To gain preferential terms and rates from insurers, companies must start and maintain a program of proactive risk monitoring and management for their supply chain.
Go beyond visibility to reduce your total cost of risk
Reducing insurance premiums and broadening coverage comes from utilizing real-time transportation visibility and risk management solutions that help organizations keep track of their cargo anywhere in the world. This enables organizations to optimize or replan routes to avoid high-risk events such as theft prone areas, weather events, or political instability. Having a better understanding of your logistics program and mitigating the associated risks by using an effective visibility and risk management tool is the first step to reducing your total cost of risk. In turn, you’ll increase the efficacy of your coverage and likelihood of having an approved insurance claim.
Real-time transportation visibility solutions will demonstrate to insurance underwriters that your company is taking the steps required for them to feel confident in reducing your premiums while offering broader coverage and aggressive terms. These solutions will provide you with data that clearly shows the real and clear steps you are taking to keep your valuable goods out of risky situations. You’ll also be better equipped to monitor your goods and manage your supply chain risks proactively.
Overhaul provides the solution to manage your total cost of risk
Overhaul’s revolutionary real-time multimodal transportation visibility and risk management solution helps to fuse active risk management with financial risk transfer, helping our customers and partners realize the full benefits of reducing total cost of risk. We use customer data to close the gap between logistics risk management and insurance carrier rating models, allowing customers to achieve an average savings of 40% on their current insurance premiums.
Learn more about how Overhaul helps with cargo insurance coverage.