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Cargo Insurance Certificates: Essential Insights for Sellers

sahil bajaj

Sahil Bajaj

Senior Specialist - Marketing @ Shiprocket

October 7, 2024

7 min read

We all know that sea shipping is prone to unpredictable risks associated with the ocean. These could include bad weather, piracy, and accidents at sea, which can adversely affect cargo transportation. 

At the same time, however, the sea routes are equally crucial for businesses to ship internationally and transport products to a global marketplace. Therefore, they need measures to mitigate financial loss in case of disaster, and it’s becoming all the more vital for businesses to invest in cargo insurance certificates to safeguard their supply chains and avoid disappointing their end customers with delays, shortages or unavailability of products in the market.

Cargo Insurance Certificates

What is a Cargo Insurance Certificate?

In certain cases, exporters or importers may not prefer to insure every shipment separately. Still, they decide to sign an insurance contract for a specific period of time, like one year. During this insurance period, all exporter shipments are covered with cargo insurance. These periodic insurance contracts are also called open cover.

In a scenario where the exporter who opts for open cover insurance needs a cargo insurance certificate for a particular shipment, the insurance firm issues the same.

These certificates are never issued as the sole insurance document for any shipment. Instead, they’re issued under open cover. An insurance firm or an underwriter must issue both the insurance policy and the cargo insurance certificate.

Both of these documents must state identical information, including:

  • Shipment details such as vessel name and voyage number, port of loading, port of discharge, and description of goods
  • Insurance terms and all the risks covered
  • Insurance premium amount
  • Insurance cover currency
  • Amount of the Insurance cover 
  • Insurance firm’s agent at the port of destination
  • Procedures to claim the insurance and associated documents

Why Do Sellers Need a Cargo Insurance Certificate?

The dependence on exports and imports has grown exponentially. More business opportunities mean greater responsibility and expectations, and there are fewer margins for mistakes. Unfortunately, surplus money in the industry also motivates scammers to take advantage of it.

Here’s why it’s usually a good idea to get cargo insurance and a cargo insurance certificate:

Mitigating Transportation Risks 

Importing or exporting always comes with many risks. These could range from receiving late payment for your cargo or having bad debt by not receiving compensation to bearing losses owing to piracy while the shipment is in transit.

Such incidents can negatively impact your brand’s reputation and cost you a lot. Cargo insurance offers protection against those risks and mitigates them, keeping your business running.

Assurance for Suppliers and Customers

You may have heard of the term general average. It is a globally recognised maritime law principle stating that if a ship meets with an accident or cargo needs to be discarded, all relevant parties should share the loss equally.

A cargo insurance certificate gives your suppliers and customers peace of mind by ensuring they won’t be stressed by damaged or lost goods. Instead, the insurance provider assumes the responsibility.

Cargo insurance is often a legal requirement to protect the client. Transporting your goods without obtaining cargo insurance won’t just spoil your reputation—it could even put you under business-sabotaging fines and lawsuits. Therefore, protecting yourself with an insurance certificate will ensure you never have to worry about breaking these laws or rules.

While legal recognition and negotiability may differ in various jurisdictions, the cargo insurance certificate aligns with established international practices, even without specific international rules or conventions governing its usage or contents. 

Both Incoterms and the ICC Uniform Rules for Documentary Credits (UCP) reference these insurance documents, highlighting their importance in global trade and commerce.

Enhanced Quality Control

Marine cargo insurance comes with conditions you must follow to mitigate risks while transporting your shipment. 

For instance, breakable items like glassware must be properly wrapped in protective packaging and even stored in a certain manner to limit the maximum amount of risk exposure. Another good example would be perishable items like food, which must be stocked in a temperature-controlled container to keep them edible and damage-free.

However, more precautions may be needed to ensure the maintenance of the quality of goods. This is where cargo insurance comes in handy; it allows you to avoid as much risk as possible by reassuring you that you took all measures possible on your end.

How to Obtain a Cargo Insurance Certificate?

The insurer or a broker (acting on the insurer’s behalf) issues a cargo insurance certificate, with input provided by the insured via the insurer’s online portal. The shipper or consignee receives this certificate and can forward it to the customs authority or bank as needed.

Although you can obtain a certificate through in-house online platforms or integrated software from third-party providers (such as Oceanwide Marine Suite or Fermion Merimen), you’ll rarely find platforms specially designed for cargo insurance data. Some examples of such platforms include Japan-based TradeWaltz, which aids pan-Asian trading.

The cargo insurance documents are now primarily issued in paper or PDF format, with a limited exchange of structured data due to the need for more online platforms equipped for this purpose. 

Understanding the Terms and Conditions

The cargo insurance certificate provides evidence of insurance coverage, adhering to various international trade and regulatory requirements. Depending on the context, you can present it as:

  • Certificate of Insurance Policy and Insurance: This is issued at the shipper’s request, primarily to fulfill the Letter of Credit requirements.
  • Debit Note (of insurance): In some countries, a debit note is issued if the consignee requests one to comply with import customs requirements.

There are mainly three types of cargo insurance, each with different coverage levels:

  • Type A covers all risks.
  • Type B comprises partial loss below deck and total loss events. 
  • Type C is the sole level of coverage under which you, as a customer, may be exposed to substantial risk because it’s a named perils policy, a specialised marine insurance policy not covering partial loss events.

Marine insurance policies do not cover cargo owners or a carrier’s limited liability by issues you are responsible for as the cargo owner. Such instances could manifest during shipping, but marine insurance will not cover any such cases caused by the cargo owner’s fault, like issues caused by something the owner did (or didn’t do) before shipping or problems that happened because of the cargo’s natural properties during shipping.

These issues in marine insurance are known as inherent vice exclusions and may include inadequate packaging, incorrect loading of goods, and cargo naturally spoiling or breaking down.

It’s also important to note that there could be exceptions to the types of cargo that cargo insurance covers. It depends on your Third-Party Logistics policy. Cargo insurance also does not usually cover service guarantee failures, so you must ensure to read your agreement’s fine print first.

Conclusion

It’s crucial that you protect your in-transit cargo in every way possible. For this, you’ll need to do more than just pack your shipment right or comply with customs and regulations in international shipping. You must secure your shipments by applying for a certificate, which serves as evidence of your cargo insurance policy. 

The insurance policy does its bit to protect you against any possible loss or damage while your goods are in transit. It gives you peace of mind and saves you from huge losses. So, ensure you have a cargo insurance certificate when shipping your orders or cargo.

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sahil bajaj

Sahil Bajaj

Senior Specialist - Marketing @ Shiprocket

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