Types of Insurance in International Trade
International trade is a complex process involving numerous risks. From the point of production to the buyer s warehouse, shipments may encounter transportation damage, natural disasters, political risks, and payment difficulties. Selecting the right insurance policies to manage these risks is vital for both exporters and importers.
The main types of insurance used in foreign trade include:
- Transport (Cargo) Insurance: Provides protection against physical damage and loss that goods may suffer during transportation. Different policy types exist for sea, air, road, and rail transport.
- Credit Insurance: Protects the exporter if the buyer fails to pay or goes bankrupt. Turk Eximbank is a key institution in this field in Turkey.
- Product Liability Insurance: Protects the manufacturer/exporter if the exported product causes harm to third parties in the buyer s country.
- Political Risk Insurance: Provides coverage against political risks such as war, embargo, and expropriation in the target country.
Coverage Types in Cargo Insurance
International cargo insurance offers three main coverage types under Institute Cargo Clauses (ICC):
ICC-A (All Risks Coverage)
This is the most comprehensive coverage type. It covers all risks except those specifically excluded. It is preferred for transporting high-value and sensitive products. War and strike risks can be added with separate clauses. The premium rate is higher than other coverage types, but the protection provided is the most extensive.
ICC-B (Intermediate Coverage)
Covers specified risks such as fire, explosion, collision, overturning, sinking of vessel, grounding, and damage occurring during loading and unloading. It is widely used in general cargo transportation and is a preferred option in terms of cost-benefit balance.
ICC-C (Basic Coverage)
Covers only damage caused by major accidents and natural disasters. With the lowest premium rate, this coverage is suitable for durable and low-value goods. Risks such as theft, wetting, and partial loss are not included in this coverage.
Incoterms and Insurance Responsibility
The Incoterms rules published by the International Chamber of Commerce (ICC) determine how insurance responsibility is shared between parties. The most critical delivery terms regarding insurance are:
- CIF (Cost, Insurance and Freight): The seller is obligated to arrange insurance at minimum ICC-C coverage. Insurance cost is included in the sale price. If the buyer wants more comprehensive coverage, additional insurance must be arranged.
- CIP (Carriage and Insurance Paid To): Under Incoterms 2020, the seller must arrange ICC-A (all risks) coverage. This change has created a safer environment for buyers.
- FOB and EXW: Under these delivery terms, insurance responsibility lies with the buyer. The buyer must arrange their own cargo insurance.
It is crucial that the insurance policy is compatible with the Incoterms rule. Knowing at which point the risk changes hands according to the delivery term is essential for selecting the correct coverage.
Claims and Compensation Process
When damage occurs during an insured shipment, making the compensation claim correctly and on time is critically important:
Damage Assessment and Notification
Goods must be inspected upon receipt, and if damage is found, the carrier must be notified in writing. The notification period for hidden damage is generally 3 days. The insurance company should be notified as soon as possible. Photographs of damaged goods should be taken and all documents preserved.
Required Documents
The following documents are required for a compensation claim:
- Insurance policy or certificate
- Bill of lading or transport document
- Commercial invoice and packing list
- Damage assessment report (survey report)
- Written notification to the carrier
- Repair or valuation invoice
Statute of Limitations
The claim period in maritime transport is generally 2 years. This period begins from the date the damage occurred or the date the goods should have been delivered. If the deadline is missed, the right to compensation is completely lost.
Choosing the Right Insurance Policy
Factors to consider when selecting the most suitable insurance policy for your business:
- Product Value and Nature: ICC-A coverage should be preferred for high-value or fragile products.
- Transport Route: Additional coverage may be required for routes passing through risky regions. War and strike clauses should be evaluated separately.
- Transport Mode: Sea, air, and road transport have different risk profiles. For multimodal transport, a policy covering all modes should be selected.
- Delivery Terms (Incoterms): Insurance responsibility is determined according to the Incoterms rule used.
- Insured Value: The policy should be arranged at least 110% of the CIF or CIP value of the goods.
Foreign Trade Insurance in Turkey
The Turkish insurance sector is developing in parallel with the growth of foreign trade. Key points include:
- Turk Eximbank: Turkey s most important institution in export credit insurance. It offers short, medium, and long-term credit insurance programs.
- Insurance Association of Turkey: The regulatory body of the sector, overseeing standards and practices.
- Open Policy (Standing): Annual open policies for companies that export continuously provide cost advantages. Each shipment is automatically covered.
- Green Card System: Applied as international compulsory liability insurance in road transportation.
A sound insurance strategy enhances the security of your foreign trade activities and protects you from unexpected losses. Conducting risk analysis for each shipment and determining appropriate coverage optimizes costs in the long run.