INCO terms are integral to your Transit/Marine insurance claims
In the General Insurance industry one of the most important policies is Transit Polices, the only policy which can pay the actual loss suffered without even a single rupee deductible, if understood and done wisely. Unfortunately, this policy on majority of the times is not sold the way they have to be done.
A transit policy proposal should start with few basic questions
- Briefly describe the commodities you wish to transit.
- Please specify the nature of packing
- Do you have Export / import of raw materials or finished goods?
- What is the Maximum value of one invoice (PBL)
- What are your terms of sale for imports / exports?
The last question is the most important of all, this decides where the insurance originates and where does it end the risk.
When we meet clients, and when we ask them this question, most of them sound ignorant, that is because each INCO Terms has its direct association to transit insurance.
For example,
Under Imports:
- Ex works: The buyer is responsible for the insurance from the time the goods are loaded in the vehicle at the seller’s point.
- CIF: Cost Insurance Freight – The Insurance risk ceases for a seller once the goods arrive at the port of destination.
The Vice versa happens in case of exports.
On both the above examples, the insurance trigger point for an Indian buyer starts from a different point, in ex-works it starts at the loading point of the country of origin and in CIF the risk for the Indian buyer originates only from port of discharge to their factory / warehouse.
Our data tells us that in majority of the imports the INCO terms are either Ex- works / FOB or CIF, on the contrary most customers assume that their materials risk lies with the seller and ignore to procure insurance cover.
On the flip side, the sellers in abroad either use Ex- Works or FOB, because they donot want to carry a long risk. If a claim happens the loss is to the Indian buyer, the vice versa happens in case of exports too.
When claims happen the insurers repudiate their claim which leaves a bitter taste to the Indian buyer.
Steps to avoid such confrontations:
- Be specific on the asset description
- If there is any liquid cargo inform the Insurer about it
- Give a brief on the packing of your finished goods
- Specify the INCO terms to your Insurer
- If there is a fragile item in your cargo, be specific to declare them
- Understand your policy’s warranties and exclusions
Few of the popular INCO terms:
- CIF (Cost Insurance and freight)
- EX-works
- C&F (Cost & freight)
- DAP (Delivery at place)
- FOB (Free on Board)
- FCA (Free Carrier)
- DDP (Delivery duty paid)
- DPU (Delivery at place unloaded)
- CPT (Carriage paid to)
Conclusion:
If done properly Marine /Transit insurance is a boon to the business fraternity because it pays for almost all the money lost in an accident, do not chase the price, understand the risk, analyse it with your insurance consultant and get the best cover, because the premium you pay is just 1/100th to the loss you might come across.
