Cargo Insurance: Choice or necessity?

1. This article is written for AMICIE (Association of Maritime International Commercial Interests & Expertise) which the author is a member of. AMICIE is conducting a seminar at Mumbai on Crew Welfare on 27^th September 2025 at Mumbai, India and we wish every success to them.
2. Insurance is basically spreading risks. If a party can bear the exposure by themselves without straining their resources, then parties may wish to bear the risks by themselves instead of incurring costs for insurance (premium) to be paid to Insurers. However, in addition to paying of valid claims, Insurers provide other services such as provision of security if required, claims handling and advisory services and which are not factored in the decision matrix of whether to purchase cargo insurance or not. While insurance products are available over the whole marine transport ecosystem (Ships – H&M, P&I, FD&D & Freight, Charterers – Charterers P&I, FD&D, Agents – PI, Stevedores – Equipment and PI/E&O, NVO’s – Transport Operator’s cover including Liability (both contractual and 3^rd party) and equipment, etc.), this article will focus on Cargo bought and sold Internationally.
3. International Cargo sales are generally on CFR (Cost and Freight), CIF (Cost, Insurance & Freight), or on FOB (Free on Board)ⁱ. If the cargo is shipped in containers, the better Incoterms would be CPT (Carriage Paid To), CIP (Carriage and Insurance Paid To) and FCA (Free Carrier)ⁱⁱ. Based on the contractual terms, the exporter/shipper is required to take appropriate insurance cover for cargo for CIF/CIP contracts while there is no such requirement for the other contracts i.e. CFR/CPT/FOB & FCA.
4. Cargo Insurance policies generally provide cover from the time the cargo is moved from the seller’s warehouse to cargo reaching the buyer’s warehouseⁱⁱⁱ. However, there is a requirement that the claimant must have an insurable interest and therefore the policy would only engage if the claimant had an interest in the cargo when the loss occurred^iv.
5. The shipping related incoterms provide for the transfer of risks from shipper to consignee when the cargo is loaded (CFR/CIF/FOB) or when it is handed over to the First Carrier (CPT/CIP/FCA). Anecdotal evidence suggests that more than 50% of the cargo shipped to and from Indian Sub-Continent is uninsured. This may be either due to cargo interests taking a calculated risk that their cargo will not suffer any incident during carriage or that they could successfully pursue recovery against their Freight Forwarder / Ocean Carrier. At least in container shipping, given the incidences of fire related casualties, it appears to us that this is a fallacy. This is because if the cargo interests are regularly shipping cargo, they would indeed face cargo losses including General Average (“GA”) and/or Salvage. If the cargo interests have not faced any such issues, we believe that it is only a matter of time before they face these issues.
6. Recovery from Freight Forwarder (“FF”) / Carrier:
   1. FF: To recover from a FF, cargo interests would have to prove that there was some fault or negligence which caused the cargo loss or damage. The FF would rarely be involved in the actual carriage and therefore the chances of them being at fault would be remote. Even if at fault, FF’s are entitled to either exclude or limit liability^v based on their standard trading conditions and which may not fully compensate for the loss suffered by the cargo interests. Additionally, any such payment of claims would only be accomplished once the complete investigations have been completed. This process would take time and therefore even if the cargo interests are able to recover from their FF’s, this will be after a passage of time!
   2. Carriers:
      1. Under the terms of the contract of carriage (Bills of Lading) and / or compulsorily applicable cargo conventions by law, Carriers are entitled to either exclude liability^vi and/or limit liability^vii for others.
      2. With respect to General Average which may be declared by Owners of the vessel, the (Owners) are entitled to seek security to secure the potential contribution due from the cargo interests. If cargo interests are un-insured^viii or insured with insurers who have poor ratings, then Owners would require a cash deposit prior to allowing release of cargo. If the cargo interests wish to deny the Owners entitlement to GA, they can do so^ix but this would only be once the adjustment has been published, and which would be generally after a few years. Additionally, cargo interests would have to consider the potential costs for pursuit and the chance of success.
      3.  Salvage:
         1. Non-Contractual: If Salvors were engaged, they are entitled to secure their claim for Salvage prior to releasing the property. Salvors would similarly require security, and which may be by way of a Salvage Guarantee provided by cargo insurers whose ratings are acceptable or if uninsured, a cash deposit in lieu.
         2. Contractual: Sometimes, Salvors are engaged on a contractual terms by Owners and in which case, Owners can seek recovery of the costs incurred under GA^x .
7. So, the question will always be whether the cargo interests are sophisticated enough to deal with these issues (contractual and otherwise), provide security if necessary and engage lawyers to consider the potential for recovery and then pursue recovery. If the cargo interests do not have the resources, it would make sense to insure their cargo with Insurers of repute who not only make payment of their claim in the first instance but also consider recovery (which would be now in their interests as the subrogated cargo insurers). Additionally, cargo interests who are involved in the trading of cargo would benefit from focusing on their core business instead of being sidelined to deal with issues which could be better handled by an entity which has this as their core business function. We believe that the majority of the cargo interests fall within this category i.e. they may not have sufficient resources to deal with cargo related issues and therefore taking cargo insurance should be a necessity and not a choice.
8. If the decision is to consider cargo insurance as a necessity, then the question to be asked is what should be the type of cover? Basically, there are two types of cover, and which are
   1. All Risks^xi: All risks of loss or damage is covered except for the exclusions provided in the policy. If the Insured proves that there was a risk, the Insurers would have to make payment of the policy indemnity unless they (Insurers) are able to show that there are policy exclusions applicable to the loss.
   2. Named Perils^xii: In this, only specific perils listed in the policy are covered. The Insured would have to first prove that the loss arose from one or more of the perils listed in the policy and for which they are entitled to indemnity. Insurers would only be entitled to deny if they could show that there are policy exclusions which override the positive cover provided.
   3. The advantage of taking an All-Risks cover is that the cover is wider. While this cover may be suitable for FMCG and other high value cargo, this may not be the best fit for commodities. Accordingly, cargo interests should consider doing a risk assessment and discuss with their Insurance Brokers to determine the cover they should buy.
9. In conclusion, whether cargo insurance is a choice or necessity would depend on the sophistication and financial wherewithal of cargo interests. Given that cargo insurance is relatively inexpensive^xiii, it would make sense to take insurance instead of playing roulette which may sometimes lead to unhappy results.

^i. See article on Shipping Terms Explained : CFR, CIF and FOB by Trade Finance Global.
^ii.See paper on Optimizing shipper contracting: the correct usage of Incoterms for containerized/intermodal freight by Drew Stapleton, Ph.D., MBA.
^iii.See Clause 8.1 of Institute Cargo Clause (A) 1/1/2009
^iv.See Clause 11 of Institute Cargo Clauses (A) 1/1/2009.
^v.See Clause 3 of FFFAI STC which allows a FF to limit liability to a sum of ₹15 (USD 0.17) per kilo up to a maximum of ₹15,000 (approx. USD 170.41) for each occurrence of loss.
^vi. See The Indian Carriage of Goods by Sea Act 2025 which incorporates Art IV(2)(a-q) of the  Hague Visby Rules.
^vii.See The Indian Carriage of Goods by Sea Act 2025 which incorporates Art IV(5) and Art VII of the  Hague Visby Rules.
^viii.We have deliberately mentioned uninsured rather than self-insured. The difference between the two is that the cargo interests in the case of self-insured, are catering for potential losses and for which they may have a separate fund available. Also see an article on Self-Insured vs Uninsured by Anthony Jones Insurance Brokers.
^ix.See Rule D of York Antwerp Rules 1994.
^x. See Rule VI(A) of the York Antwerp Rules 1994.
^xi. See Institute Cargo Clause (A) 1/1/2009
^xii.See Institute Cargo Clause (B) 1/1/2009 and Institute Cargo Clause (C) 1/1/2009.
^xiii. We have been advised that the costs of cover on ICC (A) 1/1/09 for a containerized cargo valued at USD 100,000 in normal risk areas would be less than 0.05% i.e. less than USD 50!