Tailoring coverage for importers

Our story is of a family agency and a specialty. The agency was originally started in 1919 by my grandfather and his brother under the name J & H Cohen. In the 1930s, my father entered the business, and the agency became Hiram Cohen & Son Inc. Today, I am the president of the agency and I work with my son, Darren, who is also deeply involved as the agency's fourth-generation owner.
Our specialty is insurance for the apparel industry–meaning we are heavily involved in ocean marine and warehouse insurance. We began developing our expertise in these coverages more than 25 years ago, when we were among the first agencies to realize that the apparel industry was changing and grasped the implications for our clients' insurance needs. What used to be designed and manufactured domestically increasingly was designed locally but manufactured overseas and then imported. We saw that our clients would need coverage for their imported merchandise and domestic warehousing. The advent of the Internet and advances in transportation have only accelerated the trend we first spotted years ago, while making ocean marine insurance more important for our clients than ever.
In the past 10 years, we have branched out into insuring other imported products, including furniture, household goods, wine, furs, plush, cosmetics and jewelry. However, our primary focus remains on our clientele in the apparel business. Much of our business is developed by referral, not only from clients but also from accountants and lawyers who specialize in serving importers. Our contacts and clients extend well beyond the New York area. Much of the apparel business has moved to the West Coast, where we continue to serve it. We often visit our West Coast clients five to six times annually. Any of them would verify that with e-mail and the Internet, having a broker in New York does not adversely affect them in any way.
We also attend fashion shows in New York–not to prospect for business, but rather to say hello to existing clients and old friends. When a large majority of our clients participate in the same show, it gives us a great opportunity to interact with them between their meetings.
Our clients range from startups–we love to work with “acorns” because some grow into “oak trees”–to firms with annual sales in excess of $200 million. We use stock throughput policies to cover their imports and warehouse exposures.
A throughput policy can be an extremely broad, highly customizable product. It is used to insure purchased goods from an overseas warehouse or manufacturing facility to their final destination. That could be the client's warehouse, the client's customer's warehouse or another manufacturing facility anywhere in the world. Today, we often find that fabric is purchased in Europe and sent to a manufacturing facility in Asia. Since our clients own the fabric once it leaves the warehouse, they want to make sure it is covered as it is transported to the Asian manufacturing facility and then, in the form of finished clothing, reaches its final point of delivery in the United States. A throughput policy can insure the goods from start to finish.
A throughput policy can provide broad coverage and valuation clauses, and can be customized in a number of different ways. For example, while some ocean cargo valuation clauses insure goods for their purchase cost plus 10%, we value imported products at their selling price in order to cover profit, which is particularly important for importers who already have purchase orders for the goods. (Unsold merchandise also can be valued at the client's selling price.) We value the client's goods at selling price whether they are en route to our client's warehouse or going directly to his or her customer.
We often encounter businesses that feel they do not need an ocean cargo policy because they import goods from foreign companies that insure the cargo through delivery to the client's warehouse or final destination. (In such cases, goods often are referred to as “insured on the other side.”) Once again, however, if the importer already has the purchase orders, he stands to lose the profit on the sale, because the exporter invariably covers the merchandise only for the exporter's price, not the importer's. If the business is importing sufficient volume, separate insurance to cover the difference between the importer's and exporter's selling prices is available.
The stock throughput policy also provides consequential coverage. If part of a pair or set of merchandise–i.e., a coordinate–is damaged, this coverage obligates the insurance company to reimburse the client as if it were a total loss. For example, if only the jackets in a coordinate are damaged, the insurance company will take the undamaged pants for salvage and pay the insured the full value of the coordinate. The standard definition of pairs and sets does not apply to differences in sizes and colors, however. Therefore an agent or broker must specifically request the insurer to extend the definition to take into account sizes, lots and colors–for coordinates and non-coordinates alike–when settling consequential claims. Not all companies offer this extension.
Agencies that don't specialize in ocean marine insurance often accept an insurer's policy “as is”; they do not realize to what extent insurers are willing to customize coverage and negotiate price. I am often dismayed when we are introduced to potential clients that do not have consequential coverage.
There are occasions when we arrange “franchise deductibles,” which “disappear” if the stated deductible value is reached. For instance, a client with a $5,000 franchise deductible would absorb losses up to that amount, but if a loss reaches $5,001, the deductible is waived and the client enjoys first-dollar reimbursement.
We also arrange for profit-sharing plans or “no-loss bonuses” on policies. This feature reimburses clients for a portion of their premium, if they have favorable loss experience.
The bottom line is that ocean cargo policies are not standardized. They can be, and often should be, customized to meet a client's specific need.
Submissions
All cargo insurance is written on the basis of “utmost good faith.” This obligates the policyholder to disclose any material facts or circumstances that would be required to evaluate and understand the risk. The failure of the insured or broker to disclose information that would have been relevant to the underwriting of the risk is grounds for denial of a claim. Additionally, insureds are required to report values and sales accurately and in a timely manner. Failure to comply with the reporting requirement can also lead to the denial of a claim.
Our agency's in-house underwriters obtain as much detailed information as possible, which requires them to know which questions to ask the client. The more information our clients can provide us, the more information we can give the carrier. That, in turn, enables our company to better evaluate the risk and price it accordingly.
The insurance company underwriter is entitled to know how the merchandise is stored in the warehouse. Is it stored in cartons on pallets or hanging in plastic? We obtain detailed information regarding the sprinkler system to determine if it meets guidelines for the goods stored in that warehouse. Then we also require adequate documentation of the alarm systems.
The country of origin of imported goods and the locations of warehouses are important underwriting factors. Local conditions often give rise to losses. For example, when temperatures reach extremes in hot-weather climates, plastic clothing wrappers will “sweat” and cause clothing to “bleed” and develop odors, making it unfit for sale. The risk for theft will vary with the merchandise to be insured. While it is not easy to steal a large piece of furniture, it is easy for thieves to take apparel.
As with all lines of insurance, damage resulting from hurricanes has made ocean cargo underwriters concerned about covering property in coastal locations. Therefore underwriters want complete information about importers' warehouses in those areas. For California risks, they want to know about an importer's earthquake exposure and any steps taken to mitigate it.
Among the carriers we represent are Travelers, Chubb, ACE, Great American, IMU and Fireman's Fund. While their forms are highly customizable, all are on admitted paper. In fact, we prefer not to write cargo policies on a nonadmitted basis.
Because ocean cargo policies are not subject to state-mandated rates and forms, unlike many other forms of P&C insurance, brokers have the opportunity to negotiate every contract and fulfill the client's specific needs. Whenever we review another agent's policy we can identify immediately whether the agent is knowledgeable in ocean cargo insurance.
For Hiram Cohen & Son Inc. ocean marine insurance has become an integral part of our business in the last 25 years. Unquestionably it will remain so, as we look forward to, and beyond, our 100th year in the insurance business. Ron Cohen, who has been in the insurance business for more than 40 years, is the president of Hiram Cohen & Son, an agency founded in 1919 by his grandfather and great-uncle. The agency has about 30 employees. Its specialties include insurance for the apparel, import, law and real-estate industries. It offers an array of coverages, including employee benefits and personal lines. The agency's URL is www.hiramcohen.com.