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The importance of insurance

Cargo Insurance

Despite insurance having been around for centuries, there is still a feeling that any form of insurance is a “grudge purchase” By its nature, insurance is an intangible benefit, one that can only be tested under adverse circumstances and there is nothing more adverse than cargo damage.

Cargo claims are on the rise
The past five years have witnessed a notable increase in cargo claims. Both the frequency and severity of cargo claims has been increasing, with a combination of large losses and natural catastrophe activity.

Marine insurance
The worst movement a cargo undergoes maybe while it is at sea. Unlike road and rail transport, while at sea, a ship can move in several different ways. Causing sliding, tipping and wandering of cargo which could seriously damage the cargo and/or other assets or human beings.

Container ship fires continue to be a significant cause of large claims. The Maersk Honam fire in March 2018 destroyed around one third of the 7,800 containers (about 12,000 teu) on board the vessel at the time. In 2012 a fire on board the German container ship MSC Flaminia forced the crew to abandon ship in the middle of the Atlantic Ocean.

Container ship fires are difficult to extinguish and typically lead to large complex insurance claims. The Maersk Honam fire took over a month to put out and several more months before the vessel was able to be taken to a port of refuge and the cargo discharged. The loss has been predicted to result in the largest ever general average claim.

Machinery breakdown (including engine failure) continue to be among the largest causes of loss by value and frequency. In June 2018, the US Coast Guard warned that fuel contamination at the Port of Houston was causing engine problems – the problem has since spread to other regions as far apart as Singapore and Panama – and is thought to have affected some 200 vessels. Once it is confirmed that a vessel is contaminated, operators must stop using the fuel and segregate if possible.

While improved risk management and technology should reduce claims activity, other loss drivers are likely to emerge. For example, political risks and climate change could see ships traversing more hazardous routes, such as polar waters. Climate change concerns and environmental regulations could create new liabilities for shipping companies. Meanwhile, attempts to reduce emissions could be accompanied by technical issues with engines and bunkering of biofuels, as well as encouraging even larger vessels.

With larger and more sophisticated vessels entering the sector – and more risky trading areas such as polar waters being explored – the risk of ever larger single losses occurring is growing. An incident involving a fully loaded ultra-large container ship could easily result in a $1bn to $2bn insurance claim including damage to cargo, hull, salvage and wreck removal costs.

Cargo Insurance is advised for all freight movement.

Natural catastrophes and storms cause extensive damage and disruption to ports, cargo and coastal infrastructure. But also pose inland risks for all modes of freight as well as supply chain disruption with damage to airports, warehouses, road and rail networks etc.

However, insurance cover doesn’t normally extend to protecting consequential loss. An example of this is where a consignment is delayed en route so that, on arrival at the destination, a financial loss is incurred due to the delay. Check with insurers before goods are shipped to see if you need this type of cover.

For help and advice on cargo insurance please contact one of the team on +44(0) 1622 237979 or email



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