Freight Insurance Guide: Why You Need It and How to Choose

Freight Insurance Guide: Protecting Every Shipment

In international trade, cargo travels thousands of kilometers from origin to destination, facing numerous uncontrollable risks. Freight insurance is an essential tool for protecting your commercial interests. This guide covers everything you need to know about cargo insurance.

Why Do You Need Freight Insurance?

Many assume carriers (shipping lines or airlines) bear full responsibility for cargo damage, but this is far from reality:

Limitations of carrier liability:

• Maritime carrier maximum compensation is typically limited to **666.67 SDR per package** or **2 SDR per kilogram** (whichever is higher)
• Air carrier liability is capped at **22 SDR per kilogram**
• Carriers may be fully exempt if damage is caused by "force majeure"
• Claims processes are lengthy, with the burden of proof on the cargo owner

Real example: A shipment of electronics worth $100,000 suffers total loss from container moisture during ocean transit. Without insurance, the shipping line pays only ~$20,000 — an $80,000 loss.

Types of Freight Insurance

1. Marine Cargo Insurance

International marine insurance typically follows **Institute Cargo Clauses (ICC)**, with three levels:

• **ICC (A) — All Risks**: Most comprehensive coverage, covering all risks except specific exclusions, including theft, pilferage, and non-delivery
• **ICC (B) — With Average**: Covers major risks like fire, explosion, collision, and seawater damage, but not theft
• **ICC (C) — Free of Particular Average**: Covers only major incidents such as sinking, fire, and collision

2. Air Cargo Insurance

Air freight insurance typically provides warehouse-to-warehouse coverage, including ground handling phases.

3. Multimodal Transport Insurance

Covers shipments involving multiple transport modes (ocean + land + air).

Insurance Rates and Calculations

Factors affecting rates:

• Cargo type and value (higher-risk goods carry higher rates)
• Transport mode (ocean > land > air)
• Route (high-risk routes carry higher rates)
• Packaging quality
• Insurance clause level

General rate reference:

• Marine ICC(A) All Risks: **0.3%–0.8%** of cargo value
• Marine ICC(C) FPA: **0.15%–0.3%** of cargo value
• Air freight insurance: **0.2%–0.5%** of cargo value

Insured amount calculation: Typically insured at **110% of CIF value**: > Insured Amount = CIF Value × 110%

The additional 10% covers potential profit loss and extra expenses.

Common Exclusions

Even with the most comprehensive ICC(A) coverage, these situations are typically excluded:

• Loss caused by the **insured's willful misconduct**
• Damage due to **inadequate packaging**
• **Inherent vice** of the goods (e.g., natural fruit decay)
• **War and strikes** (require separate War and Strikes clauses)
• **Indirect losses** from delayed delivery
• **Nuclear contamination**

Claims Process

When cargo damage occurs, follow these steps:

Step 1: Preserve evidence

• Immediately notify the insurer and carrier upon discovering damage
• Photograph and document all damage; retain all packaging materials
• Obtain a **cargo damage report** from the carrier

Step 2: Submit the claim

• File claim notice within the specified timeframe (typically **within 30 days** of discovering the loss)
• Prepare claim documents: insurance policy, commercial invoice, packing list, bill of lading, damage survey report

Step 3: Insurance assessment

• The insurer appoints a surveyor to assess the loss
• Verifies whether the cause of loss falls within coverage

Step 4: Settlement

• After assessment, the insurer pays per contract terms
• Total loss is paid at the insured amount; partial loss at actual loss value

Practical Tips for Choosing Insurance

1. **Choose ICC(A) All Risks**: Comprehensive protection far outweighs the marginal premium savings 2. **Declare cargo information honestly**: Misrepresentation may result in claim denial 3. **Keep all documentation**: Complete trade documents are required for claims 4. **Select reputable insurers**: Service quality varies dramatically during claims 5. **Insure before shipment**: Complete insurance before cargo departs 6. **Consider annual open policies**: For frequent shippers, annual policies offer convenience and better rates

Summary

Freight insurance costs are relatively modest but provide critical risk protection. In international trade, shipping without insurance is like driving without a seatbelt — when an accident happens, the consequences can be devastating.

Need specific freight insurance solutions? We partner with leading insurers to provide optimal coverage and fast claims service.