Insurance Document – Part I | Trade Samaritan

Insurance Document – Part I

Exporter may suffer a huge loss if the goods are damaged or lost in transit, insurance coverage protects the exporter from financial loss.

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Cargo insurance or Shipping insurance is a service that reimburses the sender if the parcel or the shipment is lost or damaged in transit. Insurance provided for air shipment is known as ‘Cargo insurance’ whereas for sea shipment is known as ‘Marine insurance’, these terms are interchangeably used in common parlance.

Insurance cover not only protects the exporter from financial and legal risk but also offers a similar protection to the intermediaries such as freight forwarders, shipping company, clearing agents and custom authorities.

In order to extend post shipment finance, the lending institution usually asks for an insurance cover. It covers the financial risk to a large extent in the event of any damage to the goods. Hence the insurance document should cover the risks required by the credit.

Cargo insurance should not confused with Trade Credit insurance.

Cargo insurance covers the underlying shipment whereas trade credit insurance is an insurance policy and a risk management product offered by the banks and insurance companies to cover account receivables. In this article we shall be discussing the pre-requisites of a CLEAN cargo insurance document under LC. We will discuss Trade Credit Insurance in our subsequent articles.

Article 28 of Uniform Custom Practices (UCP 600) is prescribed for Insurance policy, Insurance certificate and Declaration under Open cover.

Franchise and Excess deductible

Contents

  • Certificate Number: A unique number that is be assigned to the cargo insurance certificate.
  • Shipment Date: Departure date of  international or domestic shipment of commercial cargo, household goods, vehicles, boats, machinery, commodities, merchandise, etc.
  • Assured: Name of the beneficiary of insurance and address.
  • Insurer: Name of the cargo insurance policy insurer or the underwriter.
  • Shipping Details: Name of the shipping company (ocean carrier, airline, trucking co.), vessel name, voyage / flight number.
  • Insured Value: Normal rule is to insure for CIF + 10%. Total cost of the cargo, freight shipping charges, insurance premium and add 10%. This amount should cover the REPLACEMENT COST plus any unforeseen expenses.
  • Place of Origin: City, state / region, country, port of departure.
  • Final Destination: City, state / region, country, port of destination.
  • Description of Goods:  Item being shipped, number of packages / pallets, weight, marks, VIN / ID numbers.
  • Average Terms & Conditions: Special terms for cargo shipment. Cargo Insurance Policy deductible or franchise
  • Conditions: Warranties and conditions according to American Institute Cargo Clauses.
  • Additional Notes: more details on international or domestic shipment; letter of credit information, etc.
  • Consignee: if the receiver of the cargo is different from the Assured.
  • Claims Agent: company at the country of destination to be notified in case of cargo damages or losses.
  • Claims Procedures: steps to file the cargo insurance claim and list of required supporting documents.

Basics

1. Insurance policy can be submitted in place of Insurance certificate or Declaration under Open cover.

2. Institute of London Cargo Clause (A) 1/1/82 = Thefts, Pilferage, Non-delivery, Short-delivery = TNPD = All Risks.

3. All Risks = Institute Cargo Clauses (A) = Institute Cargo Clauses (Air) – used in case of air shipment.

3. Cover notes are not be acceptable.

5. All originals must be presented and must contain the signature.

6. Insurance document must be in the same currency as the documentary credit.

7. If documentary credit states ‘ All-risks’ then insurance document stating ‘All-risks’ and excluding some risks is acceptable.

8. If the documentary credit calls for an Insurance document covering ‘Usual’ or ‘Customary’ risks, insurance document will be accepted without regard to any risk being excluded.

Insurance document is a negotiable document. As per ISBP banks are not required to examine the general terms and conditions in an insurance document. However it is critical to read the insurance document in great detail in order to establish its validity and cover. Exporters, Importer and the doc checkers should take a note that ENDORSEMENT of an insurance document determines the ability and validity of the document and the claim.

ICC has set up a special commission on Financial Services and Insurance to highlight the most effective techniques employed by companies to reduce their vulnerability to financial shocks.

Insurance cover plays a very important role in cross border trade. Adhering to these best practices also contributes to global financial stability.

Conditions pertaining to the endorsement, date, signature, value and claims have been discussed in the next article http://tradesamaritan.com/world-trade/documents/insurance-document-part-ii

Suggested reading : Incoterms 2010 Chart, Incoterms 2010 Part I and Part II.

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