Has the Ship Sailed for those in the Cargo Insurance Niche?

The current administration has made several changes to US trade policies. The future of marine trade routes remains uncertain. In the present scenario, is cargo insurance still a profitable market to sell in? Or is it time to jump ship? Read on to find out! 

Cargo Insurance – Why is it so important?

The global trade relies heavily on ships to export goods. Hence, marine insurance, especially cargo insurance, is indispensable for global business.  

But what exactly does cargo insurance cover?  

Cargo insurance (also known as freight insurance) covers goods in transit. It will pay for any damage or loss caused to the products while being transported by ships. Several types of cargo insurance are available, and what you pick depends on your product and the distance it will travel. 

Shouldn’t carrier liability cover your cargo?  

The short answer is Yes.  

But, it’s not as simple as that. Limits apply to the coverage. Also, for traders shipping more valuable products, cargo insurance with actual value coverage is the way to go.  

I know what you’re thinking. If it’s so important, why the uncertainty? 

Freight Insurance: Will Global Tariffs disrupt the Market? 

Freight Insurance is the oldest form of insurance. The first known record of formal marine insurance was traced back to 1350 AD. So, the freight insurance industry is no stranger to international turbulence and disputes.

But what’s the fuss this time? Times have changed, and so have priorities.

As more and more products get imported from abroad at lower prices, the domestic industries suffer. To combat this, the current administration has been putting up tariffs on foreign goods.

These US sanctions and retaliatory tariffs from the EU and China have worried people in the freight insurance industry.

Freight insurance is written up based on several factors:

  • Weather conditions and the likelihood of disasters
  • The value of the actual cargo
  • Health and safety considerations 

Unfortunately, the coverage excludes loss caused by sanctionable activity. That’s right! If you lose your cargo to tariffs imposed on you, you cannot make a claim.

Given these conditions, freight insurers must be extra careful when writing up freight insurance for a client. They must make sure that the insured is fully aware of the risks associated with any new tariffs imposed.

Freight insurance risks attached to US trade policies are complicated and indirect. Global tariffs affect marine trade. And sadly, these effects can snowball to cause problems in the marine insurance market.

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How’s the marine insurance market right now?

The International Union of Marine Insurance (IUMI), in its annual report for 2019, has stated that “uncertainty prevails” for the marine insurance market. What does it mean for agents writing for the cargo insurance market? Should they look to switch niches? 

As per the IUMI report, global seaborne trade makes up almost 71% of total trade. And better yet, seaborne trade continues to grow year-on-year. 

As a result, the amount of premium being written has increased. The rise in global trade is having a positive impact on the marine insurance market. However, it is not the only factor influencing marine insurance premiums. The uncertainties at the world stage caused by national and regional trade restrictions also affect it. 

So how does the marine insurance sector suffer? 

Political tensions in any region will spill over to its trade relations. When trade relations between countries sour, businesses bear the brunt of the burden. And when this happens, more insurance claims come in.  

Too many insurance claims deplete the income of carriers. They reduce profitability. If cargo insurance claims continue to come in at the current pace, the market will suffer.  

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What’s on the cards for Cargo Insurance? 

Is it still a rewarding insurance niche?

The current global affairs paint a bleak picture for the marine insurance industry. But, abandoning ship might be unwise.

The losses in the freight insurance market were not solely due to the tariffs and sanctions imposed by the current administration. Natural calamities and fires aboard ships were also to blame.

Despite the apparent hindrances to this niche, cargo insurance is still a viable market for insurance agents to be selling in.

As with previous storms, the marine insurance niche is sure to weather this one out too.

Do you agree with us? Let us know in the comments below!

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