How Does Export Import Insurance Work?
International trade is an important function in any developing economy, more so in today’s global business environment. With increasing global trade, import-export activities are at a level not achieved before. But the positive impact of trade can only be felt when the goods safely reach the intended markets.
Export-import insurance is an important facilitator in case the cargo is lost or damaged on the way to the importer. It is also known as marine cargo insurance, and the policy can be used for goods being transported by any mode, be it, air, ship, rail or road.
The cargo in the export or import dealings can be insured by either the exporter or the importer, and the responsibility of it can be transferred to either as agreed. It means that either the seller or the buyer can take the responsibility of insuring the shipment. Thus, the process the insurance will follow will depend on who purchases the policy.
Who Can Buy?
Anyone involved in the transaction with any the interest in the safety of goods can propose to buy the insurance. That will include:
- Buying/Selling Agents
Apart from who buys the policy the terms of agreement and delivery price also determine the policy function in an export-import contract.
Terms of Delivery
Following standard terms of delivery can be involved in the contract:
|Contract Type||Description||Insurance bought by|
|Ex-works / Ex-factory||The price of the Goods is as on the doorstep of the factory. Rest should be taken care of by the buyer.||Buyer|
|Freight on Board / Free On Board||Seller Delivers the goods to the agreed port of shipment, and the buyer is responsible afterward.||Seller up to the port of shipment.|
|Cost & Freight / CNF||Seller delivers up to the buyer’s customs clearance port.||Buyer|
|Cost Insurance & Freight (CIF)||All delivery expenses up to importer’s location are borne by the seller.||Seller|
|Delivered at Place (DAP)||Seller delivers up to the agreed destination, the buyer takes responsibility onwards.||Seller up to the agreed destination|
|Delivery Duty Paid (DDP)||All duties up to the place of the buyer are paid by the buyer.||Seller|
Type of Insurance Contract
Buyer-seller agreement of delivery and price only determines the place and responsibility of the expenses, but large importers and exporters will need certain features which should allow them to import or export without worrying about the insurance for each shipment. Similarly, for each business requirement the policy type also changes:
- Open Cover
It is most flexible of all contracts for cargo insurance. The agreement can be put in place for 12 months, and any shipment covered by paying the requisite premium within this period. This is usually issued for international trade (import & export of goods). A similar policy can be issued for cargo transfer within India, which is called ‘Open Policy.’
- Specific Voyage Policy
Issued for each voyage. Starts and ceases with the voyage.
- Annual Policy
Annual policies can be taken by the seller (manufacturer) or the buyer of the goods. The policy is applicable to the goods which are in transit from a place owned or hired by the insured.
- Annual Turnover Policy
The annual turnover policy insures the annual turnover of the insured, instead of particular goods. The insured is required to provide the turnover data regularly to the insured and based on this the premium needs to be paid. Such policy is best suited for manufacturers, mining firms and raw materials suppliers.
What Happens in Case of Accident?
In the event of an accident, the responsible party can initiate the claim by informing the insurer or claim agent as soon as possible. The insurer will arrange for a surveyor whose fee is payable by the insured. The fee will be reimbursed if the claim is admissible.
Along with surveyor’s report following documents should be submitted:
- Bill of lading
- Packing List
- Copies of Correspondence with the carrier
- Damage Certificate issued by the carrier
Export-import insurance process depends on the agreement of delivery and type of business, which defines various factors in the contract. Therefore, it is evident that there may not be a best possible solution for everything, but your choice should be based on your specific needs.