Factors Affecting Cargo Insurance Premium Cost

Shipping goods across the globe comes with its share of risks, including natural disasters and accidents during transportation. To safeguard these shipments, businesses and individuals opt for marine insurance, a policy that covers losses or damage to goods while in transit. Understanding the cost of this insurance can be challenging, as premiums depend on various factors.

This article simplifies the process, explaining what influences marine transit insurance costs and how they are calculated.

Understanding marine cargo insurance

Marine cargo insurance is a policy that financially protects goods against damage or loss during transportation by sea, air or land. It specifically covers risks associated with shipping, ensuring that businesses or individuals don’t face financial loss if their cargo is damaged, lost or delayed.

This type of insurance is particularly relevant for exporters, importers and logistics companies, as it secures the value of goods while in transit, providing peace of mind.

Types of marine insurance

Understanding the different types of marine insurance is crucial, as each type has a different impact on premiums:

• Single-transit insurance: Covers a specific shipment from the point of origin to the destination. Premiums depend on the value of goods, mode of transport and distance.
• Open cover insurance: Provides continuous coverage for multiple shipments over a period, usually a year. This type is common for businesses with frequent exports or imports.
• All-risk vs named perils insurance: All-risk coverage protects against all accidental losses except those explicitly excluded, whereas named perils cover only specified risks such as fire, theft or collision.

Factors that impact the cost of cargo insurance

Several elements determine how much you pay for marine transit insurance. Here are the primary factors:

• Value of the cargo: Higher-value shipments attract higher premiums since the insurer’s potential payout is larger.
• Type of goods: Fragile, perishable or hazardous items are riskier to transport and can increase the premium.
• Mode of transport: Sea shipments typically have lower premiums than air shipments, which are faster but more prone to damage due to handling and weight restrictions.
• Route and distance: Longer routes with higher exposure to risks such as piracy, storms or political instability tend to have higher premiums.
• Past claims history: If previous shipments have frequently incurred losses, insurers may charge higher premiums to offset perceived risk.
• Packaging and handling: Well-packaged goods that follow international standards may qualify for lower premiums as the risk of damage is reduced.

How marine insurance premiums are calculated

The calculation of marine insurance premiums usually follows these steps:

• Determine cargo value: This includes the cost of goods, freight charges and any applicable taxes.
• Identify risk factors: The insurer evaluates the transport route, type of goods, mode of shipment and historical data on losses.
• Apply rate percentage: Insurers use a rate (often expressed as a percentage of cargo value) based on the risk assessment. Higher risk = higher percentage.
• Adjust for deductibles and add-ons: The premium is then adjusted based on the chosen deductibles and any additional coverage options.

Note: Factors used to determine premiums can vary between insurers. Please read the policy wordings or talk to the insurer for a better understanding.

Optional add-ons and riders that affect marine insurance premiums

Insurers often offer extra coverage options to extend protection beyond standard risks. These add-ons include:

• War and strike cover: Protects against damages due to war, strikes or riots.
• Theft protection: Covers losses from theft during transit.
• Temperature-sensitive goods coverage: For perishable items like pharmaceuticals or food items, ensuring protection against spoilage due to temperature fluctuations.

What are the ways to reduce marine insurance premiums?

You can manage costs without compromising coverage by considering these strategies:

• Consolidate shipments: Shipping larger volumes less frequently can reduce the per-shipment premium.
• Improve packaging: Stronger and compliant packaging reduces risk, which may lower premiums.
• Choose safer routes: Avoiding high-risk areas with piracy or political unrest can help reduce the premium.
• Negotiate open cover policies: For businesses with frequent shipments, an annual open cover can be more cost-effective than multiple single-transit policies.
• Maintain a clean claims record: Fewer claims indicate lower risk to insurers, potentially reducing future premiums.

Conclusion

Understanding the factors that affect marine transit insurance premiums is essential for both businesses and individuals shipping goods. Premiums are influenced by cargo value, type of goods, transport mode, shipping route and additional coverage options.

By knowing how insurers calculate these costs and what optional add-ons are available, you can make informed decisions while ensuring adequate protection for your shipments.

FAQs

• What is marine insurance?

Marine insurance is a policy that financially safeguards goods against loss or damage during transit by sea, air or land.

• What is the difference between single-transit insurance and open cover insurance?

Single-transit insurance covers a specific shipment, while open cover insurance provides ongoing coverage for multiple shipments over a period.

• Do premiums vary by mode of transport?

Premiums are usually higher for air shipments compared to sea shipments due to increased handling risks and faster delivery requirements.

• Can add-ons increase the premium?

Optional riders such as theft protection, war risk or temperature-sensitive coverage can increase the premium, depending on the insurer.

• How can I lower marine insurance premiums?

Strategies include consolidating shipments, improving packaging, selecting safer routes and maintaining a clean claims record.

Disclaimer: The information provided in this blog is for educational and informational purposes only. It is advised to verify the currency and relevance of the data and information before taking any major steps. Please read the sales brochure / policy wordings carefully for detailed information about on risk factors, terms, conditions and exclusions. ICICI Lombard is not liable for any inaccuracies or consequences resulting from the use of this outdated information.