Insurance Certificate or Policy
International commodity transaction passes through a high degree of risk while moving under different modes of transportation (Multimodal system). It is therefore inevitable on the part of seller and buyer to obtain an insurance coverage for the goods shipped. Various diversified nature of risk and uncertainties arise during a maritime venture of goods transportation from the original point of loading to ultimate destination such as sea perils due to bad/cyclonic weather, rough handling of goods at loading & discharging time, long transit time, use of more than one carrier during transportation etc. All these factors create possibilities for goods to be easily exposed to damage or total loss and undue delays during transit. Generally two types of risk or uncertainty may arise in the commodity trade. One is directly connected with the risk of loss due to damage and total loss of goods during transit. The second kind of loss is generated due to non-performance of the sale contract. Marine insurance certificate is the tool which provides coverage & protection to the sellers (exporters) and the buyers (importers) against the risk of physical loss, damage or spoilage and undue delays in transit.
How marine insurance certificate or policy provides risk coverage against loss, damage, delays and any other possible uncertainty during maritime transportation.
- Terms of sale contract determine whether buyer of seller is responsible to undertake a marine cargo insurance policy or certificate in order obtain insurance coverage for the goods shipped. Normally buyer has to take insurance policy when an extensive coverage of goods is required during transit. Moreover the carrier is also liable to compensate buyer or seller for any damage or loss under the contract of carriage i.e. Bill of lading.
- Although terms of sale determines who is to undertake insurance coverage, the exporter generally makes sure that adequate insurance has been done against exports shipment. The exporter has to supply necessary shipment information to the buyer in time so that he can take suitable insurance policy from insurance company before the voyage starts.
- Insurance company takes into consideration the type of cargo, the value and standard of cargo, the packing and handling of cargo and the shipping route, for determining the range of insurance coverage. Three basic risks i.e. All risks, War risk, and Warehouse to warehouse, are mainly covered by a marine insurance policy. There are two ways to obtain cargo insurance – one is a separate insurance policy for each shipment (one time policy), the other is continuous coverage of all shipments (open insurance policy). In the latter case, the exporter does not have to prepare a separate policy against each shipment. The insurance company provides an insurance certificate or declaration to the buyer at regular interval for the pre-determined period.
- To avoid delays and complicity in case of claim settlement, the insurance certificate has to be presented in the form as stipulated in the letter of credit and must contain:
- the actual amount of insurance which should cover all costs to be borne by the insuring party.
- the date of issue and the date of issue must be the same as or earlier than the date of the transport document i.e. the date of loading of goods on board the ship. A later date of issue is acceptable only when it is expressly stated in the letter of credit.
- the insurance coverage must be in the same currency as the letter of credit.
- proper description and commercial value of insured goods have to shown in the certificate which must be consistent with what is stipulated in the credit and on the invoice
- correct marks and numbers need be properly reflected, as described in the packing list related to the shipment
- name of the vessel or flight details.
- full description of the voyage covered by the insurance i.e. the place where insurance is to start – the seller’s warehouse or port/airport of loading – and the place where insurance ceases – port/airport of discharge or buyer’s warehouse.
- name and address of the beneficiary.
- name of the agent who would be authorized to settle the claims and the place where claims are payable.
- The insurance policy should cover transshipment in case transshipment is part of the trade transaction.
- Insurance documents must be in the form stipulated in the credit and be issued/signed by an insurance company, an underwriter, or its agent. Unless otherwise stipulated in the credit, the insurance must cover at least the CIF or CIP value of the goods plus 10%. If the minimum value cannot be determined on the basis of the documents, then the gross amount of the commercial invoice or the amount payable under the letter of credit whichever is greater, would be considered.