Freight Forwarder Insurance: What It Covers and Why You Need It

The process of moving your cargo across borders using the waterways or airways is fraught with a lot of risk. From “Acts of God,” accidents, failed mechanical parts, and attacks on shipping vessels, to cargo theft, any one of these can lead to cargo damage, or worse, cargo loss.

If that happens, how do you recover your losses? That’s the benefit of freight forwarder insurance. You’ll be reimbursed by their insurance providers. But which insurance is best?

Read on to learn more.

Freight Forwarder Insurance 101

Here’s a summary of what you’ll learn in this post:

• Why freight forwarder insurance is important for SMBs and e-commerce businesses
• The types of freight forwarding insurance policies and the best one for your import business

• Global best practices for cargo risk management so importers can receive compensation for any losses
• How to file a compensation claim if your cargo gets lost or damaged while in transit

We’ll discuss all these and more in detail later on in this post. However, if you need comprehensive cargo insurance, reliable FCL and LCL ocean freight forwarding, air freight forwarding, and pre-shipment inspection, in addition to a comprehensive insurance plan, sign up with Ship4wd.

What is a Forwarder Insurance?

This is insurance that your freight forwarder purchases to help mitigate risks associated with shipping cargo anywhere in the world.

This is meant to help cover the cost of lost or damaged shipments and, where necessary, cover the gap between the carrier’s and shipper’s coverage limit.

For instance, let’s say the value of your lost shipment is $500,000, but the shipment carrier’s policy limit per shipment is $80,000. This leaves you with a $420,000 deficit.

Now, if your freight forwarder’s insurance policy has a $2 million limit, you can file a claim with their insurance provider to cover the difference, and they may pay the remaining $420,000 in compensation.

Freight Insurance vs. Cargo Insurance Explained

• Freight insurance is usually provided by the shipping company, freight forwarder, logistics company, or any other entity in the transport chain. So, if your cargo is lost or damaged while in transit, you can file a freight insurance claim.
• Cargo insurance, on the other hand, is bought by you as the importer or shipper – usually through the freight forwarder. This policy protects your freight while in transit.

So, if the shipment is stolen or damaged during transportation, you can file a compensation claim with your provider. While you can buy this directly from the insurance company, purchasing through a freight forwarder will give you better rates.

What About Freight Forwarder Liability Insurance?

The freight forwarding company typically purchases Freight Forwarder Liability (FFL) insurance. This insurance covers everything from freight damage or loss caused by third-party operators to the consequences of errors and omissions made by the forwarder.

FFL complements the importer’s cargo insurance and helps ensure that both the freight forwarder and shipper are protected if a shipment is damaged or lost.

Why Both Importers and Freight Forwarders Need Insurance

International cargo shipping is fraught with risks and unforeseen events. Shipments can be lost at sea, stolen, damaged during the loading and unloading process, destroyed due to faulty infrastructure (e.g., perishable food imports going bad due to poor refrigeration facilities), or rolled due to sudden demand spikes or supply chain disruptions.

These can lead to financial losses for various parties if there’s no way to recover losses. But if all parties have the right insurance coverage, the affected person can receive compensation. That’s why a good insurance policy is a wise and prudent addition to your business.

If you run an SMB or e-commerce store that relies on imported goods, you need insurance. At Ship4wd, we provide dynamically-priced cargo insurance in partnership with Loadsure, which provides up to $2 million in coverage for SMBs and e-commerce businesses.

Check out our cargo insurance services today to enjoy peace of mind while shipping your goods.

Freight Forwarder Insurance Coverage Types

There are two broad categories of forwarder insurance policies:

1. Cargo Insurance

Cargo insurance covers cargo damage or loss suffered while the goods are in transit via air, ocean, land, or rail. This is usually bought by the importer or shipper.

The various types of cargo insurance include:

• Air cargo insurance for air freights
• Marine cargo or container shipping insurance for ocean freights
• Inline transit or land/road cargo insurance

There are two categories of cargo insurance coverage, namely:

• Named Perils: This provides coverage for risks that are specifically mentioned in the policy. Examples include fire, cargo loss due to collision, theft, or cargo damage. This is usually cheaper because of the limited coverage.
• All-Risk: This comprehensive coverage protects your cargo against most risks except for those excluded from the policy. All-risk coverage policies are often more expensive because they cover more risks.

2. Freight Insurance

This insurance policy is usually purchased by everyone involved in the cargo transport chain, including freight forwarders, logistics service providers, and shipping carriers.

It is meant to help freight forwarders cover any risks arising from the transport of cargo. There are two categories of freight insurance policies:

• Contingent Cargo Insurance: This covers claims that can’t be resolved by the carrier and importer’s insurers. For example, if a shipper’s cargo is lost at sea, they file a claim. In ideal scenarios, the carrier’s insurance company should pay.But sometimes, the carrier may either refuse to pay or is unable to pay the full amount. When this happens, the freight forwarder can use their contingent cargo insurance to settle the claim.

• Professional Liability Insurance: This covers errors and omissions that may lead to losses. For instance, if a freight forwarder’s mistakes led to cargo delays and accrued detention costs or demurrage, professional liability insurance can cover those expenses.

Is Digital Freight Forwarder Insurance Any Different?

Yes, in the sense that instead of waiting for hours or days to buy one, you can do it instantly. At Ship4wd, importers and exporters looking for reliable insurance coverage for their cargo can take advantage of our digital freight forwarder insurance services.

The features of our digital freight forwarder insurance include:

• Access to an affordable all-risk insurance policy starting at $20.
• Fast insurance purchase process – usually in a minute or less.
• Pay-as-you-go or pay-per-load insurance.
• Fast claims process and settlement in the event of cargo loss or damage.
• Flexible insurance policy pricing based on your needs.
• Full compensation even if the importer is unable to prove that the carrier is liable.

Take advantage of our easy cargo insurance process and ship your goods knowing that you’re covered no matter what happens to your cargo.

Sign up with Ship4wd today to enjoy fast, affordable, and comprehensive cargo insurance services.

When Should You File an Insurance Claim?

Ideally, you should file a claim for partially or totally damaged or lost cargo as soon as you become aware of it, preferably within a few days of discovery. However, if for some reason you cannot file immediately, you have a nine-month window within which you can pursue compensation, as per the Carmack Amendment.

Failure to seek compensation within that time frame is likely to lead to a denial of your claim.  Even if you think you have time and are considering putting off filing your claim until sometime in the future, don’t. 

It is important to remember that some evidence can be lost or destroyed over time, witnesses can forget important details or become unreachable, the carrier’s insurance provider may have their specific claims window, or you may even forget vital information. 

This can lead to significantly lower insurance payouts, if any at all.  

How to File a Freight Insurance Claim (Step-by-Step)

Sometimes, filing a freight insurance claim may feel quite complex and intimidating, especially for the average SMB or eCommerce business owner. 

This section includes a step-by-step guide to successfully filing a freight insurance claim and recovering adequate compensation for your losses:

Step 1: Identify Losses and/or Damages

As soon as you take delivery of your shipment, carry out a thorough inspection of your cargo to ascertain the extent of loss or damage. Document all losses and damages by taking pictures and videos. 

For instance, if your manufacturer sent you a picture of the shipment with three boxes loaded onto the vessel, but you only see two boxes in the freight, note this discrepancy and mention it in your documentation. 

Step 2: Contact All Necessary Entities

After gathering all the evidence via documentation, it’s time to either contact all parties involved in the cargo transport or those specifically responsible for the cargo loss or damage. 

This typically means the carrier or vessel operator, relevant insurance providers, freight forwarder, and even the supplier, if they shipped directly from the factory or facilitated the cargo loading process.

Step 3: Procure Relevant Documents

You need the right shipping documentation to successfully file a freight insurance claim. These include:

• Packing list
• Commercial invoice
• Freight or cargo bill
• Bill of lading or airway bill
• Delivery receipt or  proof of delivery
• Repair invoice (only applies if the damaged cargo is already repaired or fixed)
• Inspection or survey report (if an independent or third-party inspection agent inspected the shipment)

Also, remember to include evidentiary documents, photos, and videos as part of the claims documentation gathering process.

Step 4: File the Insurance Claim

If you’ve done the first three steps correctly, you can contact either your freight insurer or the carrier’s insurance company and initiate the claims process. You’ll be given a claims form to fill out. 

Claimants will have to enter information such as:

• Policy details
• Carrier’s information
• Claimant’s information
• Relevant documentation
• Supporting evidence and documents
• Value or estimate of cargo loss or damage
• Details of cargo loss or damage and the extent
• Specific cargo information, such as shipment description, packaging details, and quantity of items

After submitting all relevant information, you’ll be assigned a claim number. Keep that safe, as you’ll need it to track the progress on the claim. Also, if requested, provide any additional information required by the insurance company.

Common Mistakes That Delay Freight Insurance Claims

To prevent delays in processing your freight insurance claim, avoid the following mistakes:

• Providing inaccurate or incomplete freight documents and information.
• Errors in the claims documentation.
• Not reporting the cargo damage or loss on time.
• Assigning an incorrect value to your lost or damaged goods.
• Lacking knowledge of the extent of policy coverage.
• Not submitting claims within the stipulated deadlines.
• Not using independent surveyors or inspectors for damaged or lost high-value shipments.

These are some of the key issues that can cause costly errors, delay your freight insurance compensation, or even lead to a claim denial.

Best Practices for Cargo Risk Management

If you want to secure your shipment and avoid cargo damage or loss, use the following globally recognized cargo risk management practices:

• Get a comprehensive or all-risk cargo insurance policy.
• Make sure the cargo valuation matches the insurance policy’s limit and not just the commercial value.
• Ensure your freight forwarder employs risk management practices designed to mitigate your risks during cargo transport.
• Work with an insured freight forwarder who’s familiar with global shipping and knows how to deal with cargo transport and supply chain disruptions.

Frequently Asked Questions (FAQs)

Here are some of the most common questions that our customers ask:

Conclusion

Now that you understand how freight forwarder insurance works, you should protect your cargo by buying one. It ensures that you’ll receive compensation if anything happens to your cargo while in transit or in the care of the freight forwarder.

You already have insurance for your home, car, health, and every other important thing. You might as well get one for your shipments.