Understand what is international cargo insurance and how it works

Do you know how cargo insurance works? Although the subject is full of details and might raise some doubts, knowing about this modality tends to be very useful for those who work with foreign trade.

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With this context in mind, what are the particularities of this type of insurance? How does it interfere with cargo transportation? What is the coverage involved? Is it really worth hiring it?

To answer these and other related questions, we interviewed Michele Pereira Matzrrom, who is a Marine Manager at Inter Risk Service – Marine Specialized Broker. Follow the article through to the end and find out more!

What is national and international cargo insurance?

According to the expert, cargo transport insurance is, in fact, a category of insurance, which has several modalities — they can be worked on both during export and import.

“To choose the modality, we must observe some factors, such as: port of embarkation and disembarkation, urgency of delivery, weight of the service, cost of cargo, frequency, among others.” Based on these factors, there are 5 modes which are the most used ones: Air, Sea, Road, Rail and/or River Transportation, where:

• Air Transport: often used when delivery speed is a priority, although it involves a higher cost;
• Sea Transport: represents almost all transport services in foreign trade and its main advantage is lower cost over air, depending on the amount of cargo and the distance traveled;
• Road, Rail, and River Transport: best alternatives for neighboring countries and for short and medium distances.

How does international cargo insurance work?

According to the expert, for those interested in hiring this insurance, it is always necessary to analyze whether the modality offers door-to-door coverage, that is, whether it covers all stages and conditions.

“Thus, it is possible to understand when the insurance will lose its scope: whether it is at arrival at the port or only at the final destination of the goods,” she explains. Generally speaking, these insurances have a structure that resembles that used in import and export contracts. Such hiring, in turn, is based on the so-called International Trade Terms, better known as Incoterms — they define, in the contract, the rights and duties of the importer and exporter (buyer/seller), such as delivery locations, liability for costs of freight, and other related rules.

“Before hiring, it is important to do an analysis of the risks involved in every operation, which encompasses not only travel, but also the entire operation of the loading and unloading of goods at destinations. Based on this risk analysis, the mode of transportation insurance is defined, as well as the limits and coverage to be contracted “, reports Matzrrom.

When it comes to the land modal, as a national territory, the Cargo Road Carrier Liability Insurance (RCTR-C) becomes mandatory, that is, every land carrier needs it to move its cargo.

However, although this type of insurance is intended to cover accidents involving the carrier vehicle, it excludes, for example, situations of cargo robbery or theft, requiring additional coverage available on the market. Thus, these and other risks excluded in the general conditions of the RCTR-C can be assured.

Matzrrom also highlights other types of insurance involved in this category:

• RCTR-VI (International Travel Carrier’s Liability Insurance): indicated for cargo that is transported between Mercosur countries;
• RCA-C (Cargo Waterway Carrier Liability Insurance): mandatory for maritime, river, and lake transportation;
• RCTA-C (Civil Cargo Air Carrier Liability Insurance): indispensable for air travel;
• RCF-DC (Cargo Disappearance Liability Insurance): fundamental for the road freight carrier.

There are other types of expenses that may be covered by insurance and may be added to the Insurance Program:

• taxes;
• various expenses;
• freight;
• expected profits.

As you can see, each mode of cargo transport has its obligations in relation to the insurance mode. “The obligations apply to those who are transporting the cargo of third parties as well as to those who are transporting their own cargo,” points out the expert.

The laws governing these points vary according to the law of each country. In Brazil, we have the Civil Code — according to it, when goods are lost, it must be paid, for example, while the ship and other means of transport have their own cover, such as P&I (Protection and Indemnity Insurance) for vessels under the responsibility of the shipowner.

Why hire this insurance? Who should sign such a contract?

When goods leave Brazil, the contract must be signed with a Brazilian insurance company before shipping can commence. “In this sense, the Brazilian legislation can be defined as protectionist, after all, if the CNPJ (National Registry of Legal Entities) of the responsible company is national, the insurance must be made in the country, obligatorily,” Matzrrom justifies.

On the other hand, when the operation is processed abroad and is directed to Brazil, the insurance can be made in the country of origin.

There are a number of reasons why insurance — whether mandatory or optional — is a strategic action by companies. This is because the insurance is a way mitigating the risks inherent to the operation, protecting the interests of the companies and ensuring the results of the transaction. Thus, businesses that are linked to export and/or import benefit greatly from the protection offered.

Here are some situations and coverages that illustrate how useful insurance can be:

• robberies and thefts, most common in the Brazilian terrestrial modal;
• sea piracy, not so recurrent in Brazil, but present in other regions;
• accidents at sea and other damage to the ship;
• other accidents with the modal;
• door-to-door transport, which goes through various modes (multimodal);
• exclusive coverage for the total or partial loss of the merchandise;
• coverage for the expected profit required by the contractor;
• loading, unloading, and lifting operations;
• situations involving environmental damage;
• cover for storage of goods in ports;
• among others.

How does insurance analysis and pricing work? What is the Insurer’s Indemnity Time?

For some insurance modalities and coverage, it is necessary for the insured to comply with certain obligations related to Cargo Risk Management for the acceptance of insurance — the land modal theft occasions exemplify this very well. From this, the need arises to hire Risk Management companies, approved by the Insurers, whose initial objective is the preparation of PGR (Risk Management Plan).

In this sense, the insured is obliged to comply with all rules provided for in the plan, such as the guarantee of indemnity in case of loss. For pricing, after defining the coverages to be contracted, other points that are taken into consideration are: issues related to shipment risk management, modal, type of goods, packaging, value of goods, shipment, origin, and destination coverage period and the like. Then, the insurer’s underwriter will set a fee, which will be applied to the total value of the shipped merchandise and will result in the insurance value (prize).

The recovery time, in turn, occurs after the claim notice, when the claim analysis process begins by an expert serving the insurer. Upon completion of this analysis, all documentation requested by the insurer from the insured must be submitted. After that, the insurer has a legal term of up to 30 days, as stated by Brazilian insurance law, to indemnify the insured of the amounts due in indemnity and the net amount of the deductible provided for in the policy, if applicable.

In the carrier’s RC (civil liability) mode, some recoveries may last for years, for those cases that evolve into the judicial sphere until the actual party responsible for the accident is defined.

It is worth remembering that the agency is not responsible for cargo insurance, as it only legalizes the shipowner’s operations in Brazil.

Finally, it is undeniable that cargo insurance (national and international) has a very important aspect for those who operate in foreign trade. Therefore, it is necessary to know the modalities and be aware of the distinctions between them.

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