What importers should know on insurance

Udeni Kiridena ACII, ANZIIF (Snr. Assoc), Dip. B. Mgt., Chartered Insurer, General Manager (Non Life) Asian Alliance Insurance PLC

With the elimination of terrorism in the island, the growth potential in the North and the East has increased. Commensurate with this growth, the import and export sectors too are seen rising and playing an important role in the business sector.

Most of the importers in Sri Lanka entrust insurance coverage for the cargo intended to be imported, to the consignor of the exporting country. It has become evident that in some instances due to various loopholes on the part of the foreign insurer, the local importer has to undergo numerous difficulties and losses.

The consignor, when entrusted to deal with the insurance matters at the request of the local importer, generally approaches an insurance company in his country. The foreign insurer provides cover to the cargo levying high premiums, which the local importer has to pay ultimately.

Their version is that Sri Lanka is a high risk zone and therefore higher rates are charged. Instead if an importer had approached a local insurer, he would be safer since the insurer, and the importer can negotiate and seek solutions for the problems emanating throughout the voyage right up to his warehouse.

The importer not only saves on the insurance cost as a result of not having to pay exorbitant premium fixed by the foreign insurer, but also this will result in saving valuable foreign exchange to Sri Lanka.

Today more than 50 percent of the importers are not paying attention to the disadvantages they face when foreign insurance coverage is sought.

Marine insurance

Marine insurance is considered the father of all types of insurance and though small in volume, enjoys a crucial position in international commerce. The gamut of benefits extended to those engaged in overseas trade, enables protection against losses, a wider spread of capital and therefore, more scope for expansion of operations. The principal statute governing marine insurance, the Marine Insurance Act of 1906, is internationally recognized. Even with no legal compulsion on a merchant to insure goods, upon the insistence of banks, marine insurance remains an essential component in global commerce.

Cargo and hull are the two main classes which generate a high volume of marine insurance in Sri Lanka.

The cargo-insurance market is more active and volumes are larger than the hull market. With the open economy, imports and exports have grown substantially, and cargo has become the principal phenomenon. Loss or damage to cargo while being transported via sea, air, land, post, courier and even personal carriage of gems and gem-studded jewellery could be insured comprehensively under marine cargo insurance.

Unfortunately, a large number of shipments still come into Sri Lanka on CIF, even though there are numerous benefits available locally for importers. The premium is a component that is included in the CIF price of a product and therefore, it is vital for the importer to obtain the best possible cover at the lowest possible premium.

With banks being largely responsible for financing overseas trade, they will not discount a bill of exchange unless goods are insured against marine risk and the policy is lodged as collateral.

There are a number of factors that marine underwriters consider before detailing a suitable premium rate.

These include the type of goods, the packing, the contemplated mode of voyage, any problems pertaining to the ports or transit points, the age, the type and the suitability of the carrying vessel, any moral hazards, previous records or experience in claims and the extent of the insurance cover required. Considering all these, it is clear that local marine insurance underwriters have a definite advantage in offering competitive terms to importers. To be continued