Ocean marine cargo is rarely a leading topic of conversation between insurance agents and their clients. Although one of the simpler classes of insurance, it is often surprisingly misunderstood.

This is unfortunate because these risks represent a sizeable exposure for the fast-growing number of U.S. businesses active in international trade. With a little knowledge and the ability to ask the right questions, an agent can usually offer a coverage solution that makes the client's life easier–and frequently saves money in the process.

The need among U.S. businesses for ocean marine cargo insurance has never been greater. The expansion of global supply chains and Internet communications have led many more companies–be they manufacturers, wholesalers or distributors–to source raw materials, components or finished goods directly from overseas suppliers.

Unfortunately, many companies allow this insurance coverage to be arranged by the supplier, with the cost included in the overall invoice under CIF (Cost, Insurance and Freight) terms of sale.

This offers the client no opportunity to negotiate specific coverage terms and conditions, and denies the local agent the chance to develop a transportation insurance program for the client.

This can prove to be a costly mistake for both parties. The client loses control of a coverage that might be critical for its business, while the agent loses an opportunity to generate additional commission income and, via account rounding, protect the account from competition.

The first step for agents to tap into this sizeable source of income is to understand the intent of the ocean marine cargo policy.

The policy covers direct physical loss or damage to property while in transit from initial point of shipment to its final destination. “Ocean marine cargo” is a slight misnomer, as coverage is provided for airborne as well as waterborne shipments.

There is also a misconception that coverage only applies while the goods are actually on board the vessel or aircraft. In fact, the “warehouse to warehouse” clause in the policy expands coverage to include land-based movements from the supplier's premises to the air or sea port, and further land-based movements after discharge to the final destination. This is truly a doorstep-to-doorstep coverage.

The following questions will enable agents to assess their clients' need for ocean marine cargo insurance, while demonstrating the importance of having tailored coverage procured locally.

o Who currently insures your imports?

The answer will often be, “I have the supplier take care of that,” via the CIF terms of sale. This response opens the door for an agent to highlight the benefits of procuring coverage locally and insuring with a U.S. insurance carrier that is readily accessible, more cost-effective and is a “known quantity,” with expertise and a track record in this area.

Clients should also derive peace of mind from knowing their agent will be closely involved with all ocean cargo insurance matters, including claims.

o What are you importing?

Agents will need to develop as much detail as possible as to the types of goods involved to assist in discussions with underwriters.

For example, “electronics” is too broad a description, but television sets or component parts for hand-held remote controls gives a clearer picture of what is to be insured, allowing the underwriter to set a more accurate rate for the exposure.

Most ocean marine cargo policies provide “all risks” coverage, including war exposures. There are obviously nuances affecting certain goods and specific terms can be added as necessary–for example, to cover refrigerated cargo against thawing, steel products against corrosion, and oil and other liquid bulks against contamination.

o What is your anticipated annual volume of shipments?

Premium rates are based more upon the anticipated volume than the actual limits required, and the larger the volume, the greater the potential for client premium savings. But even for a smaller client with just four-to-five shipments per year, premium savings are still often achievable.

o From where and to where are the goods traveling?

The policy premium will be impacted by trading areas. Port facilities and personnel vary widely across the globe.

Certain areas also may have a higher susceptibility to claims than others due to pilferage, rough handling and the trade routes involved. For example, perishable goods transported in containers across the South Pacific can “cook” in the heat, whereas on other routes freezing can be a problem.

o What methods of transportation are used?

Most clients will be shipping goods in ocean vessels as containerized freight. Others might use global air or a combination of air and ocean freight. Each method has its own specific hazards.

o How are the goods packed for shipment?

Ocean-going freight is usually packed in containers 20-to-40 feet long. Larger clients will often ship goods in full-container loads, enabling the container to be sealed at the supplier's premises and not opened until arrival at the final destination–usually the buyer's warehouse.

A smaller importer might have to ship in less than full containers, sharing the space with other shippers. When the container arrives at the port, it must be opened and the goods deconsolidated before continuing their journey.

Air movements are very similar. Most goods travel on skids/pallets and are broken down at the airport before moving onward.

Obviously, shipments requiring deconsolidation are more susceptible to claims such as pilferage (sometimes known as shortage), theft and rough handling.

It is also important to obtain specifics as to how goods are packed. Insurers will assume that all goods to be insured are packed to withstand the rigors of the intended voyage. As such, it is important to ask packing details–for example, are goods palletized and/or shrink-wrapped? Are breakables packed in Styrofoam and then in export cartons?

o What limits are required?

Policy limits are based upon the maximum amount needed on any one conveyance.

The best way to develop this information is to ask the client for the highest amount exposed on any one vessel or aircraft during the past 12 months. This will provide the basis for agreement on what the customer needs, as well as the type of limit cushion that may be required.

o Will you be warehousing stock?

If so, the client will need additional coverage. Standard ocean marine cargo insurance will cover goods held temporarily at locations during transit–for example, a port–but not goods in warehouses after transit has ceased. Separate warehouse coverage would then be required and can be added to the policy.

o Do you need domestic transit coverage to protect the goods en route to your customers?

Coverage might be required to protect goods outbound from the warehouse to the ultimate customer. This domestic transit exposure can also be added to the policy.

Ocean marine cargo insurance is one of the oldest lines in the world. Historical records show that it was purchased by Phoenician merchants in the first millennium BC.

More than 2,000 years later, it remains a valuable but often overlooked form of coverage–particularly for smaller businesses. For agents, all it takes to unlock that value is the ability to ask a few pertinent questions.

Special Reports /

Agents Shouldn't Overlook Ocean Marine Cargo Risks

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