Under an ordinary marine insurance cover, if the goods have been damaged or pilfered or lost, the buyer report the fact immediately to his local agents or the local branch of the marine insurance company or to the firm of insurance assessors. They examine the goods and certify the extent of the loss. The buyer then works out his claim on the basis of the proportion which the damaged goods bear to the whole consignment.
If the goods have been invoiced on F.O.B (Freight On Board) value plus the cost of marine freight, insurance, and shipping charges, the buyer is entitled to claim a proportion of such charges.
The buyer would send the original insurance certificate or policy to the broker or company which issued it, with a statement of the claim and the latter would send him the money. Alternatively, the buyer may send these paper to the exporter and ask him to make the claim on his behalf, and either credit the amount to the buyer’s account or remit the money to him.
This claim procedure may be quite a nuisance; and a certain proportion of the claim is lost in the costs of transmission and exchange into buyer’s currency. To avoid this nuisance and expense, therefore, it is usual to have a C.P.A. policy for marine insurance. The letter of C.P.A. is referred to claims payable abroad. This facility costs a little extra but it is well worth paying for it. On a certificate or a policy of insurance, when the C.P.A. arrangements have been made, there will be words to the effect that insurance agent – is authorized to settle any claims arising under this certificate or policy of insurance; and, in the empty space, will be filled in the name of the town or city at which the insurance agent nearest to the buyer is located (usually the port to which the goods are consigned). Under these arrangements, the buyer can set his claim paid in his own currency on the spot.
It might be advisable even in some cases of cost and freight (C & F) shipments that the exporter should also get an insurance cover. This should be done when the exporter ships goods without being covered by a letter of credit. The goods are still the exporter’s liability until buyer has taken up the documents; and if he (the exporter) fails to do so and damage or loss occurs, the exporter will suffer, for he will find it difficult to make a claim under the buyer’s insurance agreements.
The cost of marine insurance premium is quite low, and reliable exporters, doing a fair amount of business, can probably get all the risks covered by paying 1/2 per cent and 1 per cent of the value insured, depending on the type of goods that are insured and the type of containers in which they are shipped. For instance, the insurance premium on goods packed in glass bottles is considerably higher than on the same goods packed in tin cans. It is quite possible to get a standard rate, irrespective of the destination of the goods. In addition, there may be an extra premium on war risks cover, which varies considerably according to the country of destination and in the light of the political conditions prevailing in the country of destination or in countries en route at the time of shipment. A small extra fee is payable for C.P.A. facilities. On normal goods to normal destinations, it should be possible to secure an insurance cover for all the risks including war risks under C.P.A. at an average cost of about one per cent to 1 ¼ per cent.