Logistics
The world has become smaller in recent years, making real-time communication, global delivery, and transportation of goods easier. However, the physical distances required for these goods to reach our doorsteps remain significant.
The longer journeys increase the risk of damage to our packages, making insurance of products essential for companies transporting goods by freight. This is because the longer journey increases the chance of unforeseen incidents also get higher.
Contingent Cargo Insurance
Contingent cargo insurance is a product freight brokers use to protect cargo even if a general insurance claim fails or is denied. The process of obtaining a contingent cargo insurance plan starts with the shipper. The shipper transfers deliveries to a third-party carrier. A freight broker works with both the shipper and the carrier to facilitate a contingent cargo insurance argument.
Depending on the type of products you are shipping, contingent cargo insurance may be costly, but it may reduce your company’s financial risk to a relation of the cargo’s worth.
Before moving into the details, it’s essential to understand the main points and roles in general contingency insurance:
1. The Shipper
The business that supplies the goods that must be sent is known as the shipper. Larger businesses usually contract out freight to other businesses. Since the shipper is the individual with an investment in the shipment, they need contingent cargo insurance.
2. The Carrier
The carrier is the business that handles freight work, transporting the shipper’s goods by land or water utilizing boats or other vehicles. To protect their policies, the company that is transporting the products must get contingent cargo insurance. If cargo is lost or destroyed, this insurance coverage protects the transport firm from costs related to its duty.
3. The Freight Broker
A freight broker is a person or organization that facilitates commerce for both shippers and carriers by making contracts between them. Although most brokers carry contingent cargo insurance, the broker is not required by law to do so.
4. The Managed Risk Club
The insurance agency that supports the policies protecting the goods being carried by the carrier (on behalf of the shipper) is known as the managed risk club.
Who Needs Contingent Cargo Insurance?
You might wonder who needs Contingent cargo insurance? Well, the answer is that this insurance is necessary for many people who are involved in shipping, including:
- Freight Broker
- Shippers and Manufacturers
- Logistics and Transport Companies
How does Contingent Cargo for Freight Broker Work?
A freight broker ensures the smooth flow of goods for shipment and timely arrival. Sometimes carriers refuse to use the insurance coverage, resulting in the broker not receiving reimbursement for the damage.
Here’s how it works:
- Shippers often require their freight brokers to have cargo insurance to protect their goods during transit.
- Contingent cargo insurance typically covers various risks, including theft, loss, or destruction of cargo during transportation.
- The cost of contingent cargo insurance can vary depending on factors such as the cargo’s value, the type of goods, the insurance provider, and coverage limits.
- In case of cargo loss or damage, the freight broker investigates the claim and provides compensation up to the policy’s coverage limits.
When Do You Need Contingent Cargo Coverage?
Contingent cargo insurance is necessary when general insurance fails to cover loss or damage and is often a necessary investment for various reasons.
1. Carrier Liability Limit
The amount that a carrier may be held for the loss or damage of a shipment is known as the carrier liability limit. A general cargo insurance policy, for example, may insure a carrier for up to $1 million worth of goods. Contingent cargo insurance comes into play when the value of the items lost or damaged exceeds $1 million.
2. Coverage Gaps in Transit
When a general cargo insurance policy lacks a coverage gap, a courier may be exposed to specific types of liability. A general policy could, for instance, cover theft but not flooding. This policy makes the courier helpless if water damages cargo during a flood.
3. Sensitive or High-Value Cargo
Not all cargo is created equal. Contingent cargo coverage provides an additional degree of security for cargo that is unusual, precious, or sensitive.
What Does Contingent Cargo Insurance Cover?
Several kinds of hazards are protected by contingent cargo insurance. It protects in the following ways:
1. A Subcontracted Carrier
A freight broker contracts a carrier to transport goods worth $500,000. The broker is informed that to save money, the carrier has hired a cheaper trucking business to make the delivery. The product is severely damaged in the truck’s vehicle crash. The freight broker demands payment from the carrier business. Because the insurance is no longer valid, the carrier business’s effort to submit a claim through the third-party transportation company is rejected. The losses will be paid by the freight broker’s contingent cargo insurance, protecting them from the financial burden of the damaged products.
2. Policy Exclusion Problems
The shipper hires a broker to manage the medical equipment delivery. For the delivery to take place, the broker connects with a carrier. In addition to the temperature-sensitive medical equipment being damaged, the carrier’s cooling system is functioning. If the shipper loses money due to technical failures and the carrier’s policy prohibits such losses, the broker is at fault. Contingent cargo insurance from the broker serves as a safety net, protecting everyone.
Modes of Shipping Covered
A contingent cargo insurance coverage covers the following types of shipping:
- It covers land transportation which includes any kind of transportation using a truck, cargo van, cars, railway line, or other field-based means.
- Sea freight is any cargo that is moved by watercraft, such as a cargo ship or ferry.
- The third one is air cargo which includes goods delivered by helicopter or airplane.
Limitations of This Policy
As with any insurance policy, even a contingency policy has limitations and exclusions. The exclusions are the following:
- Acts of Terrorism and War
- Damage or Misconduct Intentionally
- Delay-Related Damages
Contingent Cargo Insurance Cost Breakdown
The type and value of your products will determine how much contingent cargo insurance costs. Firms like Thimble Insurance with various products may find it more difficult to get coverage within their budget, but this insurance is relatively appropriate for companies moving valuable things.
With a minimum required limit of $100,000 per shipment, contingent cargo insurance can cost anywhere from $1,200 to $2,500 annually. The cost of insuring your items will increase with the amount of risk. For a free estimation, you may apply directly on our website.
Contingent Cargo Insurance Application
Contingency cargo insurance does not immediately cover lost or damaged cargo during shipment. The shipping company’s carrier must deny the application for coverage before a freight broker’s insurance takes effect. If you prefer not to wait, coordinate with your broker to confirm if a primary cargo insurance policy is availed.
A claim against a freight broker’s contingent insurance policy cannot be filed without a binding agreement. Ensure a contract requires the freight broker to pay in case the shipping company cannot cover lost goods using its insurance policy.
Ensure Your Freight Operations
Contingent Cargo Insurance for freight brokers is an essential practice to protect shipping industry investments. It gives peace of mind to freight brokers and protects their cargo from factors that might damage your shipment.
At TEU Global, we have become the best partners for consumer agents who work with freight dealer clients assuring them of reliability. It is a combination of insurance categories and years of thorough industry experience.
Related Read: The Role of Freight Insurance for Freight Brokers
FAQs
1. What is contingent cargo insurance?
Contingent cargo insurance is a policy that protects freight brokers if a carrier’s primary insurance fails to cover loss or damage during transit.
2. Why do freight brokers need contingent cargo insurance?
Freight brokers need this insurance to safeguard against financial losses when a carrier’s insurance denies a claim or is insufficient.
3. How does contingent cargo insurance differ from primary cargo insurance?
Unlike primary insurance, which directly covers carriers, contingent cargo insurance acts as a secondary layer, activating only when the primary policy doesn’t respond.
4. What types of losses are covered under contingent cargo insurance?
This insurance generally covers losses from physical damage, theft, or other unforeseen events not addressed by the carrier’s primary policy.
5. Are there any exclusions in contingent cargo insurance policies?
Yes, common exclusions include losses due to improper packaging, certain high-risk commodities, and specific scenarios like war or civil disturbances.
