Globalized trade has become so pervasive that its effects canpop up in unexpected ways—unfortunately, sometimes with negativeconsequences that can catch both insurance agents and theircustomers by surprise.

Take the simple example of a small business with a customer basefirmly rooted in the U.S. that earns some of its revenue fromwebsite sales. An order is placed by a buyer in Germany. Thecompany's owner ships the goods, not realizing that additionalinsurance coverage may be necessary. He learns that his businesspackage coverage doesn't extend overseas when something goeswrong—and suddenly the agent may be blamed for not offering theextra coverage needed.

The ins and outs of international shipping can be challengingfor anyone not well versed in ocean marine risks and insurancecoverage. What can an agent do to protect customers, avoidmisunderstandings and emerge as a trusted advisor?

Keep Tabs on Customers

It used to be safe to assume that a small business kept itsactivities close to home. Exporting goods and materials was left tohuge companies with the resources to establish overseas businessrelationships and access distant markets.

Related: Read the article “New Risks Mean New Opportunities ForSpecialty Insurers, Execs Say” by Susan Scalfane.

Today, a small business can go global with surprising ease. TheInternet makes connecting with suppliers and customers abroadalmost as simple as phoning someone across the country. With thedomestic economy continuing to face challenges, many companies turnto overseas sales as a way to find new customers and expandopportunities to generate revenue. In fact, U.S. census dataindicates that about 280,000 U.S. companies are now involved inexporting activities and two-thirds of those are businesses withfewer than 20 employees.

What this means for agents is that a customer who has onlyneeded basic commercial coverage can, overnight, become a businesswith far-flung risks and exposure to loss. That same customer maynot think to advise his agent of a change in business practices, anexpanded scope of operations or a move into offering differenttypes of goods and services.

A proactive agent, therefore, needs to continually strive toupdate his understanding of his customer's business, even as thatbusiness adapts to changing economic conditions and opportunities.At renewal time, and in between, it is important to ask if thecompany has engaged in any overseas trade, or plans to do so in thefuture.

If the answer is yes, a series of questionscan follow: What is being shipped? Are the items fragile,perishable or possible contaminants? Where are the goods beingshipped to and from? Is the destination a developed country withestablished commercial processes and modern infrastructure? Whatlevel of trade is the business engaged in; i.e., is this a one-timeshipment or a steady stream of sales? The answers to these andother questions can help agents determine the best path forprotecting their customers.

Understanding Terms of Sale

Companies that are new to the export world quickly find out thateveryone is speaking another language—even when the words are inEnglish. Terms of sale that seem simple and universal in the U.S.may not have the same meaning outside the country. Conversely, themeaning of unfamiliar wording may not be easily recognized by newexporters.

For example, when someone buys a couch from a furniture store inthe U.S. and has it shipped to their house, they expect it to bedelivered in perfect condition. If it isn't, the customer knows thestore is responsible for taking care of the problem. Things are notas clear cut in international trade. Sometimes the seller isresponsible for damages occurring in transit, but other times thebuyer may take on the risk of loss from the moment a shipment isunderway. It is important to know who is responsible for possibledamage. If the buyer and seller do not have a meeting of the mindsabout this important detail when their deal is struck, the resultcan be misunderstandings, reputational damage, finger-pointing andrecriminations at the time of loss.

Related: Read “Going Global: One Broker's Story” by Laura MazzucaToops.

To standardize and make the responsibilities between buyers andsellers more explicit, the International Chamber of Commerce hasissued and updated “Incoterms”—a set of international commercialterms with established meanings about when ownership of goodspasses from the seller to the buyer and who is responsible forproviding insurance on a particular shipment. Recently updated,Incoterms 2010 defines 11 sales terms or rules that went intoeffect Jan. 1. Three of the most commonly used terms of saleare:

1. EXW: Ex Works. Title and risk of loss passfrom the seller to the buyer at the place of shipment. This placesthe maximum obligation on the buyer and thus the buyer providesinsurance.
2. FOB: Free on Board. The seller must load andclear goods for export as instructed by the buyer. Title and riskof loss pass from the seller to the buyer when the shipment passesthe ship's rail. The buyer provides insurance.
3. CIF: Cost, Insurance and Freight. The selleris responsible for the arrangements, export clearance and cost ofshipping to the port of destination. However, the seller's risk andresponsibility for the condition of the cargo end when the goodsare placed on board. Although risk is transferred to the buyer oncegoods are loaded on the ship, it is the seller who must provide theinsurance. Because the seller sometimes only obtains minimalcoverage, a buyer may wish to purchase additional insurance.

Agents can help customers understand theimportance of choosing specific terms of sale for each shipment,and can review the circumstances to determine the pros and cons ofvarious insurance-buying strategies for a customer. For example,while it may sound attractive to have the buyer be responsible forinsurance costs and damages from the moment a product leaves theseller's hands, it may build better long-term customer relations tokeep control until the product is in the buyer's possession. Bykeeping control, the seller can make sure there is adequateinsurance and that coverage is with a carrier that will workswiftly to resolve claims.

Balancing Costs and Convenience

Once a company understands the responsibility it has agreed tofor overseas shipments, the next step is to determine the rightoption for covering risks. One possibility is using a reliablefreight forwarder to obtain insurance for each shipment. Anotheroption is to purchase an ocean marine insurance policy.

Related: Read the article “Pirate Attacks Rise Again” by ChadHemenway.

In many ways, freight forwarders may be compared to travelagents. Just as a travel agent might line up airline tickets, hotelrooms and car rentals for someone planning a vacation, a freightforwarder is in the business of facilitating the shipment of goods.Their expertise includes proper packaging, transit options, portprotocols, and offering insurance coverage. Often, freightforwarders specialize in certain types of shipments or specificareas of the world, so it is important to identify one with astrong track record and familiarity with the type of exporting thecompany is planning.

For the company that engages in little or moderate exporting, afreight forwarder who provides insurance specific to each shipmentmay be a convenience that is worth the price. However, once abusiness begins to ship large amounts of goods or to export itemson a regular basis, a company may be able to obtain expandedcoverage and reduce insurance costs with its own ocean cargo policythat provides automatic coverage for all company shipments.

Finding the Right Policy Fit

If a company knows it is only going to ship certain products, anocean cargo policy that provides broad coverage for just thoseproducts may fit the bill. However, if a company that has alwaysshipped office furniture to Europe suddenly has the opportunity tosend glassware as well, it may find it needs a different type ofpolicy to help avoid uncovered exposures.

In response to these types of situations, many insurancecarriers have created so-called “all-risk” forms that continue toprotect the customer by providing extensive coverage even when theyship different merchandise. These types of policies frequentlyallow the customer to pay premium based upon annual shipment value,or some other measure such as gross sales.

Agents can assist companies in finding the right policy to fiteach company's coverage needs and to decide whether or not toobtain an ocean cargo policy. Agents may help customers findpolicies that include a number of specialized coverages; sometimesat no additional cost. Several insurance carriers provide policyforms with coverage that include features such as:

• Concealed Damage.
• Shortage from Containers.
• Consolidation.

With respect to these and any types ofinsurance coverage, it is critical that the company and its agentclosely review the policy forms in order to understand the terms,limitations, sub-limits and exclusions that apply to the particularcoverage.

What to Look for in a Carrier

As with any business that supplies support for other companies,carriers that offer ocean marine insurance have different levels ofexpertise and experience in providing service to customers. Acompany that buys ocean marine insurance will want to know that itcan reach someone to report a loss, and that its claim will behandled swiftly and fairly. Providing top-notch claim service ismore complex when the loss takes place overseas.

Carriers with significant experience in the ocean marineindustry typically have claim representatives all around the world,ready to address the challenges of export business claims.Additionally, many carriers will issue a certificate of insurancefor overseas shipments, which contains information about thecoverage and what to do in the event of a loss or damage. Withtoday's instant communications, local claim representatives caninspect damage, report back to the U.S.-based carrier, and beginthe process of adjusting the claim without delay.

Saving the Day for Customers

Technology makes shipping goods abroad easier than ever andtoday's economy makes reaching out to new markets more attractivefor almost every size of business. Agents cannot presume theircustomers are still selling to the same close-to-home purchasersthey always have.

Instead, agents should routinely check in with their smallbusiness customers and be ready to provide expertise aboutinternational risks and protection. Doing so positions theinsurance agent as the professional who is watching out for thebest interests of customers, even as their businesses change andgrow.

If goods are damaged while a freight forwarder waits to combineseveral shipments into one container load, the ocean cargo policywill provide coverage. If goods are placed into a sealed containerand are missing upon arrival, the policy provides coverage for theloss, provided that the amount loaded into the container wasdocumented.When a shipment is received, the buyer may note thepackage is intact, but then find the contents are damaged once thepackage is opened at a later date. A policy that includes concealeddamage will provide coverage for losses when discovered, up to aset amount of time, after the shipment is received.