When it comes to insurance, we only tend to find out the inadequacies of our cover when we make a claim.

For example, when we purchase car insurance we may perhaps choose the cheapest option, but when we have to make a claim, we might face a staggeringly high excess, no courtesy car to keep us on the move, and no legal fees cover for when the other driver tries to take us to court.  The costs mount up, and that’s with insurance.

So too with liability insurance for freight forwarders.  Prudent freight forwarders already appreciate the importance of purchasing liability insurance for their business. They are already aware of the financial strain they could face if they are liable for another party’s loss.  What that freight forwarder might not be aware of is how inadequate their liability insurance is, until it is too late.

So here are some tips to ensure your liability insurance will protect you when you need it:

• Make sure you purchase marine liability insurance – general non-marine liability insurance does not provide cover for international forwarders, but is often purchased in the mistaken belief that it does. 

• Ensure you have full liability protection to cover all of your forwarding operations. Some forwarders only request cover for their house bills of lading, but if you work in customs broking, warehousing or distribution, then the liability exposures for these need to be covered as well.

• Check that your insurance covers you for Errors & Omissions and Legal Liability – all freight forwarders have a contractual liability for a loss, regardless of who is responsible.

• If you trade internationally, check that you have adequate limits of liability, particularly for Errors & Omissions claims. Being sued and found liable in a Californian court can be expensive.

• Defending an action brought against you, even if you were not at fault, can be time consuming and costly so ensure that your cover includes Defence, either “ground-up” or “first dollar” if possible (so that you do not have to pay a deductible or excess).

• Make sure that General Average and Salvage Charges are included as these types of claims can fall back onto the forwarder.

• Utilise your own “Conditions of Trade” to limit your company’s liability in your day-to-day business where no standard limitations of liability are employed (such as FIATA or COGSA), and make sure that you refer to them on your company website, letterhead paper and invoices. Get your insurer to view and approve these before the inception of your liability insurance contract, and if you make any changes to the conditions or your limits of liability, you must get prior approval from your insurer.

• Never accept liability without first speaking to your insurer.

There are also ways to avoid losses, which we encourage all freight forwarders to consider:

• Never agree to release containers or cargo without the production of the original Bill of Lading, no matter how well you know your customer or how long you have done business with them.

• Always keep original Bills of Lading in a secure place and ideally separate some of them so that if there is a fire, for example, you will not lose all of the originals.

• To lower the chances of a customer seeking compensation from you for loss or damage to their cargo, always encourage them to purchase cargo insurance.

The best advice we can give to freight forwarders is to use the services of a specialist marine insurance broker.  They will be able to find you the most competitive deal available, whilst ensuring that the cover is tailored according to your company’s needs.  An experienced marine insurance broker can make sure that the insuring conditions under your freight services liability insurance are wide enough to protect your company against the liabilities you face and that the insuring premium is competitive for that level of cover.

Container manufacturers struggled to keep their factories open during the global economic slowdown and many were forced to close and lay off workers. The sudden turnaround in demand by shippers has caught many manufacturers unawares, resulting in a significant shortage.

The problem will become more acute as a number of factors come together:

• Growing consumer demand as the world’s economies begin to recover
• An increased emphasis on slow steaming, leaving more containers at sea for longer
• New box ships coming on stream – 28 containerships were ordered in September alone, 16 of which were 8,000 TEU or more
• The expansion of trade and the use of larger vessels, particularly in the intra-Asian, European and South American trades
• Congestion at terminals, especially in Indonesia, Philippines, Vietnam and Thailand

These factors are being further accentuated by the late arrival of documents due to flight delays strikes, volcanoes, weather, engine problems – as well as importers not paying sellers on time – leading to boxes remaining on wharves for longer.

Increased pressure is being applied to forwarders by shipping companies keen to ensure containers are collected and returned promptly.

In many instances, forwarders are being subjected to financial penalties for delays even when these are beyond their control.

Furthermore, the forwarder has to contend with claims for damaged or spoiled cargo, theft and pilferage of goods awaiting delivery, and the legal costs of defending spurious claims.

Protection may be available against most of these penalties, fines, errors, omissions and other claims exposures via our “Freight Services Liability” insurance cover. We also recommend that forwarders obtain competitive marine insurance cover for the cargo owner to protect their client relationships in the event of an unforeseen situation.

Please contact your usual broker at FP Marine Risks or email info@fp-marine.com if you would like to discuss how we may be able to help.

Freight stations and warehouses can each contain hundreds of millions of dollars worth of goods that are at risk of becoming total losses from perils such as fire, flood and wind.

Earlier this year, a serious fire swept through the Punjab Conware Freight Station in India. The facility is 15,000sq ft and was storing a mixture of cargo from chemicals and tyres to garments. Due to the nature of the cargo, the fire was able to rage on for over 24 hours even though a significant number of fire engines attended the scene.

Most cargo policies provide limited extensions for cargo stored in these types of facilities or on the wharves, in stockpiles or train depots but the policy extensions need to be looked at carefully by both the policy holders and Insurers.

Freight forwarders and cargo owners need to ensure they have adequate scope of cover and sums insured clearly stated in their policies.

They should anticipate that with the growing use of transport hubs at any point in the transit / storage chain, there is always a possibility of such large high-value accumulations occurring.

Likewise, cargo insurers should anticipate all possible exposures, including unforeseen accumulations. They should clearly state intended location value limits and ensure they have sufficient facultative reinsurance in place.

All cargo interests should speak to a specialist marine insurance broker who will be able to design and secure the best cover for cargo owners, and place competitive reinsurance for underwriters.

The global economic gloom is casting its shadow over insurance like everything else, with sharp rises in premiums likely across the board in the near future. We asked logistics-industry insurance expert Philip Bilney* why reducing cover is not a good idea.

Can project forwarders avoid paying more for insurance?
The temptation is always there to skimp on insurance cover. Reducing the level of cover or seeking less comprehensive policies may save money short-term but the risk is that it would be a “false economy”. It does look as though the insurance market in general will harden over the next several months – in other words premiums will rise – for a number of reasons. This applies to most sectors including Marine Cargo insurance, E&O, projects and project-related cover such as Delayed Start-Up (DSU) or Advanced Loss of Profits (ALOP) insurance. But the answer at a time like this is to look to an organisation such as the WCA Family that has the buying power to reduce the impact of any market price hikes.

So insurers are seeking to restore their profits?
Essentially, yes, because insurance companies have to make a profit like anyone else. Here are some of the reasons why – reasons you may care to pass on to project owners tempted to cut back at this difficult time.

First, supply and demand: insurance capital is derived primarily from equity markets and when that capital dries up, the amount of risk any one insurer can accept is reduced. Less equity market capital means a reduced supply of insurance capital, which in turn leads to a higher price to buy that small part of it which you need to cover your risk. In this regard it behaves in much the same way as any other commodity, but in the opposite direction.

Similarly, there is not an abundance of capital sloshing around looking to take advantage of a perceived increase in rates. After Hurricanes Rita and Katrina, which hit the Energy and Offshore market so hard, there was a rush of new capital into the industry to take advantage of the anticipated hardening, with the result that it never actually happened. That sort of capital ingress often tends to manifest itself in the form of new start-up reinsurance companies which are effectively the wholesalers of insurance capital.

But surely premiums are already expensive?
Actually, premiums will be rising from a relatively low level. The market has been at historically soft levels for the last year or so and thus is due an upturn anyway (in my experience upturns only really happen when the market is already genuinely soft). We had the same situation immediately before 9/11, which prompted the last serious hardening of the market.

Also, major losses were unusually high in 2008. For example, claims from
Hurricane Ike alone are expected to reach USD16 billion.

Insurance companies are famously known as “investors with a bad habit” (underwriting), so many have been hit hard by a collapse in their asset values. The thing is, very few are admitting to it yet.

What other factors contribute?
Generally speaking, recessions on a scale now being encountered worldwide produce more crime, including fraudulent claims and associated losses, and that of course drives up premiums.

Insurance buyers will often ask why the cost of their particular insurance has gone up in a hard market although the risk remains the same. The answer is that all classes of insurance are connected because the source of capital is much the same, and reinsurance costs (the mechanism by which insurance companies offset their risks) tend to rise across the whole industry. So the tide of the whole market rises and falls as one, although of course individual anomalies do occur here and there.

When will the premium increases start to hit home?
Curiously enough given the depressing economic news, there is some debate over whether this hardening is actually happening as yet. The ‘rescue’ of AIG has actually had the effect of reducing some prices because AIG has to compete harder to retain market share, and in other areas some insurers are maintaining prices in order to avoid losing good business.

But in general, insurance companies are refusing to reduce premiums now and there are some areas (Marine Hull for example) where increases of 5-10 percent are already being applied. The jury is still out, but the general view in the industry is that prices will move sharply upward from early 2009.

Trade Credit premiums, on the other hand, have already doubled. If you can buy cover at all. Default & bankruptcy claims are escalating dramatically and most insurers in that sector (there are only a handful) are hunkering down and declining to accept much new business while they wait for the storm to pass. But business is still being done.

So what can project forwarders do to economise?
Despite some rising prices, now would be the worst possible time to run uninsured. Claim frequencies will rise, not only for the reasons I mentioned above, but also because more goods will be rejected by customers than would normally be the case, and if they are genuinely damaged, then cargo insurance will cover this.

FSL (freight services liability cover) also becomes more vital as people get more litigious and the nmber of disputes rises. Forwarding businesses are highly exposed at the best of times, but the risks can only worsen as the world’s economies slide into recession and trading becomes more difficult.

It’s also worth bearing in mind that insurance companies tend to give a much better deal to long-standing clients than they do to companies who are perceived to dip in and out of the market. So while there is every reason to ‘shop around’, there is also value in building and maintaining a good relationship with an insurer over time – try to work only with reputable, secure insurers and where possible leverage off the influence of those organisations who have genuine buying power.

*Philip Bilney is group executive director of FP Marine Risks, a specialist provider of insurance products and services across the entire spectrum of Marine and related sectors. Based in Hong Kong, in 2006 the company was the first Asian-based insurance broker to become a fully accredited Lloyd’s of London broker following three years of mandatory provisional accreditation. FP Marine Risks, the sole broker for WCA Family of Logistic Networks, developed Project Cargo Insurance, one of a suite of products available exclusively to members of WCA Family that includes Marine (cargo) insurance and Freight Services (E&O and legal liability) cover.