Cargo: Asset loss control in the world of cargo insurance

Traditional risk assessments carried out as a partnership between underwriter, broker and insured should be commonplace. In the world of cargo insurance, however, it is possible to go one stage further by engaging with the loss control (LC) department of an insurer to help minimise the risk of losses happening in the first place, says Paul Brown of Chartis UK.

Insurers’ LC departments have experience of, and can offer tailored advice about, a range of sub-sectors of the cargo market; manufacturers, shipyards, logistics operators, large project-cargo operations and even mega yacht owners.

What extra value does a loss control department add?

A good LC department will be proactive in its approach. Potential client exposure can be analysed leading to tailored recommendations to minimise risk. By combining an assessment of client loss frequency with severity trends, assessing the client’s loss control capabilities, and utilising the knowledge and experience of the individuals in the department, practical feasible recommendations can be developed.

LC departments can also provide guidance and training. Good LC departments will hold documents and training materials covering a wide range of marine related technical subjects which an insured can access.

When to engage loss control services?

Any time is a good time to investigate the knowledge and skill base of your insurer’s LC department. Reviews can prove useful at a number of points during the life of the insurance policy; after inception, when surveyors are appointed for cargo movements, at a kick off meeting for a project cargo, during a claims review, when reviewing transport documentation, as a warehouse risk assessment or as part of a carrier risk assessment.

Once the services of the LC department have been engaged, the lines of communication are open, and by exchanging essential information on a regular basis a mutually beneficial relationship can develop.

What skills do a good loss control team have?

A good cargo LC team will be made up of a network of local experts. Their skills will often include sea-going experience, some will be licensed mariners, and some will have backgrounds as former cargo surveyors, port captains and claims specialists as well as more specialised experience in areas such as cargo crime prevention, logistics and packaging.

Loss control in practice – a case study

A freight forwarder had a client for whom they shipped consumer electronics in North America. The insured suffered three major thefts in a relatively short space of time during the road transit part of the journey.

The insured worked with the LC department to analyse the losses. It transpired all three loads were subcontracted to the same supplier, no security instructions were issued on pick up, all loads had been left in non-secure unattended parking spot overnight, and two of the three loads were stolen over weekends (traditionally a high risk time for cargo theft in the US and Canada).

The LC department immediately advised the insured to stop subcontracting loads and instead choose one or two carriers with whom the company had a strong relationship, and to stop shipping over the weekend.

Further investigation revealed that the cargo was highly desirable on the black market and had been targeted for theft from other transit companies. The LC department continued to work with the insured to implement a range of actions to reduce risk, including:

• Never shipping over a weekend and only releasing the goods when they could be delivered on the same day, or kept overnight in a secure place.
• All drivers were required to drive 250 miles on receipt of the load and commit to driving that distance before stopping.
• Drivers were asked to notify dispatch or the customer of any stops and to lookout for anyone following them or asking about their load.
• Only two trucking companies were used with no brokering allowed.
• Short haul high value loads were escorted and met at the other end of the journey
• Security specifications were built into the contracts of the truckers and the trucker’s liability was set at a high level so that most or all of the load would be paid for if a theft occurred.

These, and other, suggested changes to the company’s working practice, resulted in no subsequent losses after the original incidents. What this example illustrates is that working with a good LC department on security issues, and then combining good logistics with careful security planning and appropriate use of technology can reduce the risk of cargo theft in road transit.

Paul Brown is cargo manager in the UK marine division of Chartis