The current shape of commercial activity is inextricably linked to transport. Therefore, anyone involved in trade on any scale, whether domestic or international, must answer the following questions: do I bear transport risk directly or indirectly, what will be the consequences for me of the materialization of transport risk in relation to the goods I trade, and am I financially or organizationally prepared for the materialization of transport risk? Undoubtedly, answering these questions requires an analysis of many circumstances accompanying both the conclusion of the sales contract and other agreements accompanying the conclusion and execution of this contract.
What can be the consequences of damage to or loss of our cargo? If the cargo is not an object of trade, the matter is obvious. Its loss or damage is simultaneously a financial loss for the owner. In the case of a commercial contract, the situation is slightly different. The buyer will not receive the expected cargo or will receive damaged cargo. So, if they are a manufacturer for whom the ordered cargo is a means, material, or raw material for the production of goods whose sale is intended to bring profit, then
- they will not produce these goods, and consequently will not sell them and will not achieve the assumed profit from such a sale
- they will be forced to produce a smaller quantity of goods than assumed, and consequently will realize a reduced profit from the sale of the product
- they will have to order a new batch of the expected cargo to continue production or commercial activity
- they will have to incur additional costs related to restoring the damaged goods to their original quality in order to achieve the assumed level of production, and consequently the level of revenue from sales.
If, on the other hand, they are the manufacturer of the cargo intended for sale, they risk that: they will not receive payment for the sold cargo, or to receive payment for the sold cargo, they will have to incur the costs of its repair or reproduction.
In each of the cases discussed, the result of damage to the ordered or sold cargo will be a financial loss. At this point, we must answer the last of the questions posed above. However, what can preparation for the materialization of the risk of cargo damage look like? The first way to protect oneself is self-insurance. One can either assume that the transport risk is so negligible that we are always ready to bear its costs and include these costs on an ongoing basis in the general costs of our business without a significant impact on the profitability of our business activity. One can also create one’s own compensation fund, to which funds will be transferred, from which, in turn, losses caused by transport damage will be covered. The second of the suggested solutions results in the necessity of “freezing” financial resources that could be mobilized and used in another way.
However, other solutions can be applied: the first is cargo insurance in transport, and the second is claiming compensation for damage to the cargo from the carrier or other persons guilty of causing such damage, responsible for its occurrence and obliged to repair it. To make a choice between these two variants, one must very carefully trace what the differences are in the scope of the policy liability of the cargo insurer and the civil liability of the carrier for damage to the transported cargo.
Policy with incomplete protection
If, due to the fault of the courier company, a package is lost, damaged, or does not reach the recipient on time, the sender will receive compensation. When delivering domestic shipments, courier companies operate according to the rules of the Transport Law act, and international ones – according to the CMR Convention (Convention on the Contract for the International Carriage of Goods by Road). Based on these, they have included provisions on liability, complaint procedures, claims, and compensation in their regulations. However, it is difficult to find provisions there that would give injured customers more privileges than the act and the convention guarantee. What can injured customers of courier companies count on? The basis for claims is proving to the courier company that the customer suffered a loss as a result of its actions. In addition to a complaint letter with a description of the circumstances of the damage and a copy of the shipment confirmation, the customer must present a VAT invoice documenting the value of the damage. The carrier generally has up to three months to consider a complaint. The time may be shorter if the value of the damage does not exceed 5,000 PLN.
Insurance speeds up complaint processing
When a shipment has been damaged or lost, the compensation will not exceed its value. Additionally, the customer can decide to insure it. Formalities can be handled when sending the package. Customers using additionally paid cargo insurance gain by shortening the time for processing a potential complaint. Instead of the three months resulting from the act, it is processed within 14 days from the moment the insurer receives the complete set of documents. Of course, the insurer will also demand invoices, which are the basis for paying compensation. Different rules apply to delayed shipments. Here, the customer can count on double the fee for sending the shipment (in domestic transport) or its equivalent (international transport). This is not much, considering that courier companies strongly emphasize a “guaranteed” delivery time in their offer. Some companies, however, have taken care to simplify the formalities.
Cargo – prices vary
The purpose of cargo insurance is to compensate for the loss that arises in the policyholder’s assets as a result of the loss, shortage, or damage to goods due to the occurrence of random events to which the goods are exposed during transport. The subject of insurance is all kinds of goods during their transport from the place of dispatch to the place of destination, by all types of transport: road, air, rail, and inland, as well as during transport carried out using two or more different means of transport. The contract can be concluded for the insurance of goods during only one transport or for the insurance of goods of a specific type during transports carried out in a specific time, e.g., within a year.
The cost of vehicle fleet insurance depends on the claims history and it is by no means a rule that companies pay less than individual customers. For insurance companies, a fleet is a minimum of ten vehicles. Sometimes you can encounter the term “mini-fleet”, which applies to companies using 5-10 cars. In such a situation, however, one cannot count on special treatment, but at most on a discount in the tariff. If a company has at least a dozen or so vehicles, its cooperation with the insurance company is based on individually negotiated terms – directly between the company and the insurance company branch or through a broker. The fleet owner must first determine the scope of insurance. Most decide to cover vehicles not only with mandatory insurance but also with comprehensive insurance (autocasco), and even accident insurance. Then comes the choice of insurer.
Price terms are negotiated based on the client’s claims history. However, a client of an insurance company can obtain a discount if they decide, for example, to introduce a program motivating drivers to drive without accidents. Smaller discounts are given for additional protection of vehicles against theft, because the cost of this risk constitutes a relatively small percentage of the policy price. In practice, it may happen that a company with a very high claims history will pay a higher premium than would result from the tariff. This applies especially to regions outside Warsaw, where tariffs are relatively low.
Giants decide
The situation looks slightly different for fleets numbering several dozen or even several hundred vehicles. Insurance strategy then becomes an important element of the fleet owner’s financial and tax policy. In the case of large enterprises, one must ask the question of what part of the risk is worth taking on oneself, and what part to transfer to the insurer. Economic calculation may show that it is not worth buying comprehensive insurance (autocasco), because the cost of the premium will be higher than the cost of the risk, dispersed among several hundred or even over a thousand vehicles. It happens then that the company decides, for example, on a very extensive deductible, thanks to which it covers most damages itself, and the insurance in practice covers only the total destruction of the vehicle or theft.
In the case of very large fleets, it is possible, for example, to negotiate a share in the insurer’s profit, provided that a much lower claims history than assumed is achieved. After establishing all conditions, the company signs a general agreement with the insurance company. Furthermore, each vehicle must have an individual policy. Premium payment is usually spread over installments, especially since the value of the contract changes with changes in the size of the fleet.
It can also be done differently
One of the large insurance companies operating in Poland has introduced the so-called “General terms and conditions of property insurance in cargo transport”. According to these terms, the formal division into domestic and international transport has been replaced by a substantive division, according to the difference in risk – into property insurance in sea transport and in transport other than sea. The many years of experience of this company in the global insurance market allowed it to propose a product corresponding to the mission that the company sets for itself in its activity – the highest quality of offered insurance. The terms allow for granting insurance protection in many variants – starting from random events, theft, to insurance based on the all risks principle – i.e., concerning all risks. In insurance in sea transport, the offered insurance scopes take into account the specificity of transport and the so-called “wet” risks, characteristic of this type of transport.
Road transport insurance – in the case of international transports, previously offered on the basis of Institute Cargo Clauses, whose genesis was marine insurance, are currently proposed in variants better adapted to the risks to which this type of transport is exposed. The terms of insurance in sea transport and in transport other than sea are complementary, which allows for constructing insurance protection in the case of multimodal transport that is adequate to the variability of risk during such transport. As an alternative possibility of constructing insurance protection, “General terms and conditions for concluding insurance contracts” have been created based on the globally well-known so-called Institute Cargo Clauses developed by the Institute of London Underwriters. These clauses concern risks related to the carriage of goods on international routes by: road, rail, air, and sea transport. Each clause guarantees a specific scope of protection. Furthermore, always – depending on the type and consistency of the transported goods – it can be additionally insured.
The primary goal that guided this insurer in creating the new provisions of the insurance terms was to expand and develop the scope of the offered insurance protection, as well as the precision of the provisions, clarity of wording, and transparency of the product structure. The terms contain a detailed description of the rights and obligations of the parties to the insurance contract, and all this is intended to ensure the insured the certainty of the rules and conditions of the concluded insurance contract.