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Minimizing risks in bulk cargoes insurance

With the increasing volume of bulk cargoes by sea and increasing tonnage of transport vessels, insurance companies need to take measures to prevent and minimize risks to ensure efficiency business results as well as advising customers.

Usually, to prevent risk mitigation of bulk cargo insurance, insurance companies often introduce measures such as control vessels; consider insured risks provided to customers; expertise, prevent losses and provide an exemption often with a deduction for the risk of deficiency.

VESSEL CONTROLLATION

Vessels in general and bulk cargo carriers in particular play an important role in controlling risks to the goods. Usually for bulk cargo shipments, insurance companies often add a number of provisions related to the vessel, to limit the possible risks as follows: ISM supplementary clause on goods; ISPS Revision of goods; Terms of vessel classification January 1, 2001.

The above three provisions are intended to require the vessels to be suitable for the carriage of such cargoes, as well as comply with the 1974 Solas Convention. In other words, the above three provisions are to supplement, increase the legality of the “The clause excludes vessels incapable of seaworthiness and unsuitable for transportation.

In addition, insurers often require insurance buyers to provide information about the vessel before the cargo is loaded (normally 2 to 5 days) for them to consider the acceptance of the shipment insurance. For imported consignments, the importer buys insurance after signing sales contract and if there is no information about the vessel, the issued certificate/insurance application usually states: “Note: Before loading on board, the Insured Person must send the information about the vessel to the insurer

to verify the vessel. The insurer is only liable for indemnity when the vessel participates in the Shipowner’s civil liability at the International P&I Insurance Association, and during the voyage the vessel’s P&I application must remain in force”. The addition of the above commitment aims to:

  • Ensure the vessel is insured with the P&I Association. In fact, there are many cases where the goods are damaged by the fault of the carrier. The insurance company, after compensating the owner of the goods, will proceed to reclaim the carrier. In order to ensure the carrier’s claim, insurance applications/ insurance contracts for bulk cargoes usually require the vessel to be insured with the P&I Association. Joining the P&I Association will ensure that the Association guarantees and commits to compensate for the vessel’s liability.
  • Nationality, tonnage, IMO number: to check whether the vessel is in the appropriate group of vessels carrying that type of cargo, transporting the correct tonnage or not, if the vessels’s nationality is in the group of embargoed countries, or if the countries have commercial disadvantages, in order to minimize the risks involved.

  • Vessel age: the older the vessel is, the higher the risk, such as late delivery, deviation due to outdated equipment, regular technical problems. Therefore, to limit the risk, insurance companies will set the age of the carrier for bulk cargoes or charge an additional fee for old vessels. Usually insurers will charge a surcharge for old vessels according to London market tariff.

CONSIDERATION OF INSURANCE RISKS PROVIDED TO CUSTOMERS

Bulk cargoes are often moldy, clumping, rotten, germinating due to the nature of the goods; affected by the difference of humidity, by environment temperature when traveling between different climatic regions as well as temperature difference of day and night. Therefore, it is difficult to determine if goods are moldy due to “moisturizing” (not excluded in A) or “nature of the goods” (except in A) for these goods. This has caused difficulties and problems in the work of compensation review and easily cause disputes.

When the goods are covered under condition (A), the insurance companies will stipulate: “Elimination of mold, discoloration, sticking and other losses caused by steaming”. This exclusion is intended to ensure good control of risks as well as avoid disputes in determining whether the loss is caused by “steaming” or “nature of the goods”.

In case the Insured requires the insurer not to apply the above exclusion to their goods, the insurer will conduct a review based on: The nature of the goods, journeys, Carrier Specifications and some other information.

To offer an extension for losses caused by the nature of the goods - “This insurance application is extended to cover losses: mold, discoloration, sticking and other losses caused by nature of goods”, provided that the premium rate increases.

PROVISIONS OF DEDUCTION LEVEL FOR SHORTAGE RISK

For bulk cargoes, the insurer often extends insurance for the shortage goods by weighing at the destination port, so the insurer needs to organize supervision, to prevent losses for each shipment. Therefore, when starting unloading (not knowing if there is any loss or not), the insurer will be the one who writes the inspection request to the inspection company. The purpose of hiring an inspection company is to prevent and limit losses. Each insurance company has a list of inspection companies.

In addition, due to nature of goods; loading and unloading by bucket or suck tubes, the loss in loading and unloading is relatively large. At the same time, the systematic error between the water line inspection method and weighing method at port is also quite high. Therefore, insurance company will depend on each type of goods to apply an appropriate deduction to minimize the risk of compensation due to shortage of goods.

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