In the transporting of products to and from various markets around the globe, traders often make use of freight forwarders to assist with the administrative aspects of the movement of goods, storage and customs clearance. A long-accepted trend has been to arrange for insurance of the cargo through freight forwarders, typically all risks insurance as the freight forwarders’ liability is limited in terms of their standard trading conditions.
However, recent claims trends have shown that such cover is usually inadequate especially for more specialised cargo. With so many players in the transport chain, it can be difficult to prove who is responsible for a cargo mishap, highlighting the need to purchase a separate cargo insurance policy that is specifically designed to cover the nature of goods in transit.
According to Jeffry Butt, Marine Manager at Aon South Africa, importers and exporters are accepting insurance quotations from freight forwarders (FF) where the complex issue of risk is reduced to a mere line item and Rand value, without a clear understanding of the nature of cargo and risk exposure. In fact, in many instances, traders have no idea of what they are covered for, relinquishing any responsibility thinking that the forwarder has it covered.
“Under South African legislation a client has the right under the Financial Advisory and Intermediary Services (FAIS) act to be properly informed and advised of the insurance cover given and to be provided with a policy document noting the rates, terms and conditions related to the levied premium. A good place to start is to ask the transporter, clearing or forwarding agent to provide their FAIS license as issued by the FSB,” says Jeffry.
A single shipping container can contain items that are valued on average between R5 – R20 million, which is why it is crucial to put the potential risk of loss into perspective. A comprehensive needs analysis by a qualified broker is an absolute necessity to establish what an importer or exporter needs and that adequate cover is provided and all potential risks have been identified.
“The process wasn’t legislated prior to 2003,” says Jeffry. “Because freight forwarders dealt with the cargo and were involved with the logistics of shipment, it made sense to offer insurance cover as well. The problem, however lies in the fact that this offering moved freight forwarders out of their primary business specialisation, meaning that forwarders were fulfilling the role of a broker without having the expertise, approved training and understanding of this complex subject. Although this practice is now addressed by the FSB with the implementation of FAIS and the RE qualification requirements, the depth and quality of cover provided is still very much “cut and paste” with little consideration given to the risks of specialised cargo.”
To comply with regulations, freight forwarders are currently adopting a common practice of having a limited number of key individuals and representatives who are FAIS licenced and in terms of the representatives not always qualified. “It is however not a practical solution due to the limited number of qualified individuals who are not able to advise the volume of clients with the best suited cover and technical detail that is required to achieve a well-rounded insurance solution,” Jeffry warns.
Most clients who insure through forwarders are not aware what they are covered for, which is at the heart of the issue. “Generally operators opt for insurance that covers ‘all risks’, thinking that they are protected for every event; not realising that ‘all risks’ cover only provides insurance cover for unforeseen or accidental events not excluded by the policy. An example is an importer who is shipping a container of meat, the chance of the cooling system failing in the container for no apparent reason is not an unforeseen event, it is something that needs to form part of a contingency plan and is therefore not covered under ‘all risks’ insurance,” illustrates Jeffry.
“Every possible aspect of risk needs to be considered, whether you are shipping project specific items that are crucial to the completion of a plant/factory with a time deadline or perishable items that require a specialised storage environment. Protection against loss of profits as a result of an insured peril, for example, are necessary in the event of an incident that could leave clients at the mercy of circumstances that are well beyond their control; affecting their finances and leaving their reputation in tatters,” says Jeffry.
“It is crucial to enlist the aid of a professional insurance broker who will perform a comprehensive needs analysis and advise clients of the appropriate covers. A broker will also greatly assist in interrogating the limitations of insurance policies and will highlight any exclusions that appear to be onerous, this will ensure that there are no surprises at the time of instituting a claim,” concludes Jeffry.