Marine Cargo Insurance and Incoterms: Who Insures the Goods?

The short answer: your Incoterm decides who must buy cover, and the party who carries the risk is not always the party required to insure. If you import or export, marine cargo insurance in Malaysia is how you make sure the goods you are financially exposed to are actually protected. This guide covers the trade-terms side: who insures under each term, what to declare, and how a claim works.

This article is general information only. Incoterms, cargo clauses and policy wording vary, and the policy wording decides what is covered.

Incoterms at a glance

Incoterms are standard trade terms published by the International Chamber of Commerce. They set out who arranges transport, who pays for what, and where risk passes from seller to buyer. The table below is a simplified guide to the most common terms. Your sales contract and the version of Incoterms it refers to are what count.

Notice the gap. On FOB, CFR, CIF and CIP, the buyer carries the risk during the main journey, yet only CIF and CIP oblige the seller to buy any insurance at all. On DAP and DDP, the seller carries the risk, so the seller is the one with most to lose.

Why "the seller arranged insurance" may not be enough

Under CIF and CIP, the seller must buy cover, but the term sets only a minimum. Under Incoterms 2020, CIF usually calls for the more limited Institute Cargo Clauses (C), while CIP usually calls for the broader Clauses (A). The cover is typically valued at 110% of the invoice value and issued in the currency of the contract.

That minimum may not suit your goods. A buyer should consider arranging their own cover when:

• the goods are fragile, high value or sensitive to temperature, and a limited clause level would leave too much out
• the seller's certificate does not cover the whole journey to your warehouse
• you want to deal with the claim directly, rather than through an overseas seller
• you cannot see the actual policy, only a certificate

Ask for the policy wording or certificate before shipment, not after something goes wrong.

What sum insured to declare

The sum insured is the most the policy will pay for a shipment, so it needs to reflect what you could lose. Many cargo policies value the goods on a basis like this:

• the invoice value of the goods
• freight and other shipping charges you have paid
• import duty and taxes, if you would not get them back after a loss
• an allowance for expected profit, which is where the common 110% valuation comes from

Declaring only the invoice value is a common mistake. If the sum insured is lower than the real value, you are underinsured, and a claim may be reduced in proportion. Check how your policy defines the insured value.

Example only, not a real claim: an importer buys goods on FOB terms. The invoice is 100% of the goods value, freight adds a further amount, and duty is payable on arrival. If the importer insures only the invoice value and part of the shipment is lost, the freight and duty already paid may sit outside the claim. Insuring on a basis that includes them avoids that gap.

All risks or named perils: the Institute Cargo Clauses

Most marine cargo policies refer to the Institute Cargo Clauses, a standard set of wordings used across the industry. In plain English:

• Clauses (A): the broadest. Covers all risks of loss or damage unless specifically excluded.
• Clauses (B): named perils only, such as fire, explosion, vessel stranding or sinking, overturning of a land conveyance, and water entering the vessel.
• Clauses (C): the narrowest. Named major casualties only, such as fire, explosion, stranding, sinking and collision.

Even the broadest clause level has exclusions. Common ones include:

• inadequate or unsuitable packing
• inherent vice, meaning damage from the nature of the goods themselves
• ordinary leakage, ordinary loss in weight, and ordinary wear
• delay, even if the delay was caused by an insured event
• financial default or insolvency of the carrier or others
• war, strikes and similar risks, which are usually dealt with in separate clauses

Where cover starts and stops

Cargo cover is often described as "warehouse to warehouse", but the exact start and end points come from the policy wording. In general, cover begins when the goods leave the warehouse named in the policy for the start of the journey and ends on delivery to the final warehouse or storage place, or after a set number of days at the discharge port, whichever happens first.

Transhipment, port storage and delays at a terminal are where gaps often appear. If your shipment may wait at a port, tell your insurance broker or agency before it ships.

Single shipment or annual open cover

A single shipment policy covers one named voyage. It suits occasional importers and exporters, or one-off high-value shipments.

An annual open cover covers shipments of a stated type on a continuing basis, with each one declared as it ships. It suits businesses that ship regularly, because cover is already in place when each shipment leaves, and it avoids the risk of forgetting to arrange insurance on a particular shipment.

How a cargo claim works

1. Note the damage on delivery. Record any visible loss or damage on the delivery documents, and take photos.
2. Notify the insurer promptly. Tell your insurer, broker or agency as soon as you find the problem. Policies usually set notice conditions.
3. Protect the goods. Take sensible steps to limit further loss and keep the damaged goods available for inspection.
4. Arrange a survey. The insurer usually appoints a surveyor to assess the cause and extent of the damage.
5. Gather documents. Typically the bill of lading or air waybill, commercial invoice, packing list, the survey report, the insurance certificate or policy, and any correspondence with the carrier.
6. Watch the time limits. Both the policy and the carrier's terms have deadlines, and they are not the same.

A claim on your own cargo policy is different from a claim against the carrier. The cargo policy pays you for the loss under its terms, and the insurer may then try to recover from the carrier. A claim against the carrier depends on the carrier's liability and its conditions of carriage, and often has its own short notice period.

Why carrier liability is not a substitute

A carrier's responsibility is usually capped and subject to exclusions, so what you recover may be well below what you lost. Cargo insurance on your own goods is what closes that gap.

• Carrier liability vs goods in transit insurance
• Who is liable when a carrier damages your goods
• Freight forwarder liability insurance guide

Common questions

I am a Malaysian buyer on FOB terms. Who insures?

Usually you do. Risk passes to you once the goods are on board at the foreign port, and FOB does not require the seller to buy insurance. Arrange cover to start before the goods are loaded, so there is no gap.

I export ex-works. Do I need to insure?

The term does not require it, because the buyer takes the goods at your premises. But if payment is not yet received, you may still have a financial interest in the goods. Check your sales contract and payment terms.

Do e-commerce sellers need marine cargo insurance?

If you ship stock internationally and you own the goods in transit, cargo cover may be worth considering. The courier's liability is usually limited. See insuring goods when you use a third-party courier.

Is hull cover the same thing?

No. Hull insurance is a different policy, bought by ship owners to cover the vessel itself. Cargo insurance covers the goods on board.

Related reading

• Working With Marine Insurance
• Marine vs Goods-in-Transit Insurance: David Teh Explains
• Commercial insurance for Malaysian businesses

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