Key concepts in cargo insurance: broker, coverage, claims and more.
It is the name given to insurance intermediaries or brokers, who arrange cargo insurance between the INSURED and the INSURER, together with the related services.
It is an agreement set out in a document called an insurance policy, in which an insurance company (the INSURER) undertakes, in return for payment of a premium, to indemnify or compensate losses, damage or harm incurred in a fortuitous event during the movement of the insured goods, as previously agreed with the INSURED.
The policyholder is the person who takes out the insurance with the insurer and undertakes to pay the premium. In many cases the policyholder is also the insured. If the policyholder and the insured are different people, the obligations and duties arising from the contract fall on the policyholder, except those which by their nature must be fulfilled by the insured.
The beneficiary is the person named in the policy by the insured or the contracting party as the holder of the indemnity rights set out in that document. The beneficiary may be named expressly or implicitly and is generally chosen freely. It is common, however, for the beneficiary to have a personal, family or economic link with the insured or the contracting party.
It is the value on which the insurable interest exists, that is, the value of the goods that will be insured under the policy. In other words, it is the verifiable value of the insured goods.
It is the document that evidences the purchase of an insurance policy and sets out the general characteristics of the insured values and the coverage included in the service.
Insurable interest is the relationship between the policyholder and what is insured, in this case the goods. It means the insured has an interest in the loss not occurring.
Coverage is the insurer’s principal obligation in an insurance contract. It consists of bearing, up to the limit of the sum insured, the economic consequences of a claim.
They are nations excluded by the OFAC list (Office of Foreign Assets Control), and for that reason cargo insurance coverage cannot be granted for goods originating in or destined for the countries on that list. These restrictions come from the laws of the United Mexican States and the United States of America, from resolutions issued by the UN, or from commercial limitations imposed by the Office of Foreign Assets Control of the United States Department of the Treasury.
The countries in question, in force as of 2023, are: Afghanistan, Albania, Algeria, Angola, the Balkans (Bosnia, Herzegovina, Bulgaria, Slovenia, Macedonia, Romania, Kosovo), Belarus, Burma (Myanmar), Chad, North Korea, Côte d’Ivoire, Croatia, Crimea, Cuba, Eritrea, Ethiopia, Georgia, the Persian Gulf and adjacent waters including the Gulf of Oman, Guinea, Iraq, Iran, the Russian Federation, Israel and the coasts of the Red Sea, Laos, Lebanon, Liberia, Libya, Montenegro (former Yugoslavia), Nigeria, Pakistan, Qatar, the Central African Republic, the Democratic Republic of the Congo, Serbia, Sierra Leone, Syria, Somalia, Sri Lanka, North Sudan, Ukraine, Uzbekistan, Venezuela, Yemen, Zaire, Zimbabwe.
The deductible is the insured’s share, through the deduction or payment of an amount from the total agreed with the insurer, as a result of a claim.
A claim means unforeseen situations that can cause harm, damage and loss, whether total or partial, to the insured goods during the policy period.
ROT stands for Riesgos Ordinarios de Transporte (Ordinary Risks of Transport). It refers to the basic risks that can occur during the transport of goods, strikes, malicious acts by third parties, and loading and unloading operations.
General average is the sacrifice of goods during ocean transport, or the extraordinary expenses the master of the vessel must incur to safeguard the vessel, most of the cargo and the crew. If it occurs, everyone with an insurable interest in the vessel must contribute proportionally to the expenses and losses incurred.
Reinsurance, also known as “insurance of insurance,” is a contract by which an insurer transfers part or all of the risks it has assumed to a third party called a reinsurer. The reinsurer takes on part of a claim that may occur in exchange for compensation called a reinsurance premium.
Coinsurance is a contract in which several insurers associate in order to insure large exposures that, on their own, would mean a high risk for a single insurer and, in many cases, would exceed the limits previously supported by the insurance.
Subrogation is the act by which one person replaces another in the rights and obligations of a given legal relationship. In an insurance contract, subrogation allows the insurer to take the place of the insured in exercising actions or rights against the third parties responsible for the accident or claim, in order to recover the amount for which they would be civilly liable because of the damage caused. That indemnity, as stipulated in the policy, is initially borne by the insurer.
Underinsurance occurs when the sum insured is lower than the real value of the property to be insured. That is, the value stated in the policy is lower than the real value of the insured goods. If a claim occurs, the indemnity received will be lower than the real value of the cargo, which can cause an economic loss for the insured.
Overinsurance occurs when the value the insured assigns to the insured goods is higher than their real value. In this case the insured object is overvalued or overinsured, which can lead the insurance company to deny payment of any indemnity that exceeds the real value of the insured object.
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