What is Contingent Cargo Insurance?

Contingent cargo insurance is a type of insurance coverage that covers the damages or losses that are not covered in standard and general cargo insurance policies. The word contingent refers to insurance coverage that is not primary but comes into effect when general cargo insurance does not pay up.

In simple words, contingent cargo insurance is a backup insurance coverage that comes into effect when the main policy has a limitation and exclusion.

This insurance coverage covers the unexpected expenses associated with risks like theft, physical damage and even delays. It offers businesses peace of mind that their cargo is protected if something unfortunate happens, covering financial losses and safeguarding business operations.

-Freight Brokers: It is a firm or individual that negotiates the deal between shipper and carrier, facilitating smooth business for both sides. Freight brokers investing in contingent cargo insurance enhances the business's faith that the broker is covered even if the carrier refuses to pay.

-Logistic and Transport Companies: Various transport and logistic companies are also considering investing in contingent cargo insurance to protect their assets. With a policy, the cargo will get comprehensive protection in the event of loss or damage, protecting the logistics company from liability costs.

-Shippers and Manufacturers: Shippers and manufacturers also invest in contingent cargo insurance coverage because of the monetary interest in the shipment. If a product is lost or damaged during transit and the carrier does not cover it, this insurance will offer coverage.

-Also Read: Freight Insurance

-Physical Damage: Goods or cargo can be damaged during transit due to handling risks, unpredictable sea conditions and various other environmental factors. Contingent cargo insurance covers physical damage to cargo during transit. It ensures that the shipment or cargo is protected even in unexpected damage or loss.

-Theft: Another significant concern for businesses or shippers is theft when transporting high-value goods. Contingent cargo insurance providers offer coverage for theft for any leg of the journey. This means that if the high-value shipment or cargo is stolen, the policy will cover the losses.

-Loss Due to Insufficient Coverage: If the base policy has fallen short in terms of coverage limits, contingent cargo insurance will fill the gap of primary or general cargo insurance policies. For instance, if a primary cargo insurance policy does not cover the shipment's worth, contingent cargo insurance will make up the difference.

Contingent cargo insurance offers valuable support when the primary cargo insurance policy leaves the gap in coverage. Here are some scenarios where contingent cargo insurance can be helpful.

-Carrier’s Policy Cancellation: A carrier's insurance policy that is cancelled due to non-compliance with certain conditions can leave a business without adequate coverage. However, in such scenarios, contingent cargo insurance fills the gaps, offering continuous coverage even if the carrier’s policy is cancelled.

-Policy Exclusion on Primary Coverage: Many times, a primary marine or cargo insurance policy comes with certain limits and exclusions that restrict policy coverage in certain situations. If a loss or damage to cargo falls under such a situation, the primary policy will not offer coverage. However, such an exclusion can be covered under contingent cargo insurance.

-Also Read: Special Cargo Insurance Policy in Marine Insurance

Consider a logistics company, ABC, which has a standard cargo insurance policy in place to protect its shipments during transit. However, during one particular journey, the company experiences a major accident that leads to a staggering loss of 20 million in goods. While the standard cargo insurance policy covers a portion of the damage, there is still a significant financial gap that leaves ABC exposed.

This is where contingent cargo insurance steps in. ABC, anticipating potential gaps in coverage, had the foresight to invest in this additional protection. Contingent cargo insurance picks up where the primary policy falls short, covering the remaining losses and minimising the company's financial burden.

As a result, ABC avoids a catastrophic financial setback that could have severely impacted its cash flow and business operations. Instead, the company is able to maintain its stability, protect its bottom line and continue its operations without major disruptions.

-Cargo Type: One of the factors that affects the contingent cargo insurance premium is the type of cargo. There are different types of cargo based on goods such as commodities, industrial materials, perishable goods and more. Goods that have higher salvage values are considered safer and result in lower premium rates.

-Shipping Route: Another crucial factor in determining the contingent cargo insurance premium is the shipping route. Shipments that go through risky waters or regions with political instability, poor loading and unloading facilities, etc., have higher premiums.

-Coverage Type: The type of coverage chosen by the business also plays a crucial role in determining premiums. If a business applies for comprehensive protection based on its specific business requirements, it may attract a high premium rate.

-Loss History: Another crucial factor in determining contingent cargo insurance premiums is the applicant's loss history. The insurance provider assesses the customer's previous losses to determine risk potential. If the customer has losses, then the premium will be higher.

-Risk Management Strategy: If a business has a proper risk management strategy in place, it will attract a lower premium rate. These strategies include workplace safety measures, disaster preparation and more. They ensure the low chances of mishaps during voyages, leading to lower premiums.

-Vessel Type: The insurance provider also considers the type of vessel transporting the goods. The company will ask about the vessel's age, indemnity coverage and more. Generally, an older vessel has a higher premium compared to a newer vessel.

Step 1: In the event of an incident, take the necessary action to minimise the damage and loss.

Step 2: Inform the insurance provider about the loss and damage to the cargo as soon as possible. File a claim request and submit all necessary documents.

Step 3: Also notify the shipping company about the damage and loss. Lodge and FIR if cargo is stolen.

Step 4: After getting a request, the insurance provider will appoint a surveyor to investigate the loss or damage to the cargo.

Step 5: Based on their finding, the surveyor will submit their report to the insurance company.

Step 6: The insurance company will approve or reject the request based on the surveyor's findings, claim forms and other supporting documents.

In the maritime industry, contingent cargo insurance is crucial for businesses to protect themselves from unanticipated losses and financial hazards. This policy is a valuable layer of protection that can be paired with a primary cargo insurance policy. It ensures that the goods and cargo are protected against various unanticipated risks.

TATA AIG provides marine insurance policies designed for businesses involved in maritime transportation and shipping. Our marine insurance policy provides coverage for losses or damage to ships, cargo and other maritime assets, safeguarding the insured from substantial financial setbacks caused by accidents, theft, or other unexpected events.

What is the processing time of contingent claim insurance?

The processing time for a contingent cargo insurance claim can vary depending on the complexity of the incident, the insurer and the documentation provided.

Can I raise a claim under the cargo insurance policy for general average loss?

Yes, you can raise a claim under your cargo insurance policy for a general average loss as long as the policy covers such incidents. General average refers to a shared sacrifice made to save the ship and cargo during a perilous situation and insurance typically covers your portion of the loss.

What to do if my marine insurance claim is denied?

If your marine insurance claim is denied, start by reviewing the denial letter to understand the reason. Then, check your policy to confirm coverage, gather any additional evidence and appeal the decision with supporting documents. If needed, consult a maritime lawyer or file a formal complaint with the relevant authority.