I. Who Purchases the Insurance
Determining who purchases the insurance depends on specific factors.
Regarding the practice of insuring export cargo, the policyholder’s perspective is as follows: CIF—Under CIF/CIP terms, the seller arranges insurance and pays the premium (whereas under FOB, CFR, EXW, etc., the buyer is responsible); FOB—The party responsible for arranging insurance varies depending on the trade terms used (contracts based on FOB or CFR should specify that the buyer arranges insurance, while CIF contracts must stipulate that the seller arranges insurance with the People’s Insurance Company of China, covering the insured amount, type of coverage, and applicable terms); Agency Arrangement—If the buyer requests the seller to arrange insurance under FOB terms and the seller agrees, the contract must clearly detail the arrangements (insurance terms, insured amount, coverage type, and the burden, timing, and method of premium payment); CIC—The seller must purchase cargo insurance meeting the Institute Cargo Clauses (C) at their own expense (e.g., LMA/IUA Institute Cargo Clauses or similar; insurance should be placed with a reputable underwriter or insurance company, granting the buyer or any party with an insurable interest the right to claim directly from the insurer); Class A—If you are the buyer under CIF terms, do not assume the seller’s policy is sufficient (request an insurance certificate and review the terms; consider asking the seller to purchase ICC(A) instead of ICC(C)); Credit Insurance—In addition to cargo insurance, export credit insurance is an option (SINOSURE has paid out over US$27.9 billion in cumulative claims and recoveries); Summary of Six Key Points for the Policyholder: CIF (seller responsible), FOB (buyer responsible), specify agency arrangements, ICC(C) as the minimum, request ICC(A), and supplement with credit insurance.
II.
Selection of Coverage
What to consider when selecting coverage.
Regarding the practice of export cargo insurance coverage, consider the following six aspects: Basic—Basic coverages include Free from Particular Average (FPA), With Particular Average (WPA/WA), and All Risks; Additional—Additional coverages are categorized into general additional risks (covering total or partial loss caused by general extraneous risks) and special additional risks (covering total or partial loss caused by special extraneous risks); Types—There are 11 types of general additional risks (such as Theft, Pilferage, and Non-delivery); Clauses—Currently, my country generally adopts the “Marine Cargo Insurance Clauses” of the People’s Insurance Company of China (PICC), effective January 1, 1981, as the standard; Minimum—CIF terms typically provide only the minimum coverage (equivalent to ICC Clause C) up to the port of destination (buyers often require additional “All Risks” coverage); Agreement—If goods are exported under CIF terms, the specific insurance coverage to be arranged by the seller must be clearly stipulated in the trade contract (in the absence of such a stipulation, the matter is handled according to international trade practices and the laws of relevant countries; insurance must be arranged before the shipment begins)—Six key points on coverage: three basic coverages, two categories of additional coverages, 11 types of general additional risks, the 1981 clauses, CIF minimum (Clause C) coverage, and contractually agreed coverage; understanding these six points clarifies the insurance coverage.
III.
Insured Amount
What to consider regarding the insured amount.
Regarding the insured amount for export cargo insurance, consider the following six aspects: Formula—Insured Amount = CIF Value × (1 + Markup Rate) (in import/export trade, the markup rate is typically 10% per international practice, though different rates may be agreed upon with the insurer at the importer’s request); Convention—Industry practice aligns with Incoterms, setting the insured amount at (C+F) × 110% (i.e., cost of goods plus ocean freight, plus an additional 10% for extra costs and reasonable profit); Upper Limit—Insurance laws and international trade practices generally stipulate that the insured amount for export cargo should include a reasonable markup on the CIF value (usually 10%; while different rates may be agreed upon with the insured, they generally do not exceed 30%); Conversion—CIF = CFR / [1 – Insurance Rate × (1 + Markup Rate)] (if a CNF quote is used, it must be converted to a CIF price); Premium—Premium = Insured Amount × Insurance Rate (premiums generally range from a few parts per ten thousand to a few parts per thousand of the cargo value); Consistency—The insurance currency must match that of the Letter of Credit (L/C), and the written amounts (figures and words) must be consistent (the markup percentage must strictly adhere to L/C or contract stipulations; if unspecified, insurance should be taken out at 110% of the CIF or CIP invoice price). Summary of the six checks: CIF multiplied by (1 + markup), the 110% convention, markup not exceeding 30%, CFR converted to CIF, premium calculated in parts per ten thousand, and consistency with the L/C—these six checks ensure the correct insured amount.
IV.
Timing of Insurance Coverage
What to consider regarding the timing of insurance coverage.
Regarding the timing of export cargo insurance, consider the following: **Before vessel departure**—insurance must be arranged before the ship sails (to avoid disputes over backdating claims); **Before shipment**—coverage should be finalized prior to loading and dispatch (to avoid coverage refusal or lack of compensation); **Deductibles**—pay attention to deductible amounts and rates (coverage can be based on 110% of the cargo value); **Open Cover**—enterprises with high annual shipping volumes can sign open cover agreements with insurance companies (rates are negotiable for bulk cargo and stable clients); **Underwriting/Beneficiary**—under CIF terms, the insured party is the beneficiary (for CIF/landed price or FOB/free-on-board price, the insured is typically the consignee); **Documentation**—provide ocean bills of lading or commercial invoice details for sea freight (or air waybills/commercial invoices for air freight; the insurance company can handle the drafting of the policy); **Summary of the six timing factors**—insure before departure, finalize before shipment, consider deductibles/rates, open cover agreements, CIF beneficiary status, and bill of lading/invoice documentation—ensuring compliance across these six areas.
V.
Claims Settlement
What to consider regarding claims settlement.
Based on export cargo insurance claim practices, here is how to view the claims process: **Process**—The claims process includes emergency rescue, timely reporting, document submission, cooperation with inspections, and confirmation of settlement; **Documents**—When applying for a claim, the insured must provide relevant documents (insurance policy/certificate, waybill/freight bill, delivery order, invoice/proof of value, freight records issued by the carrier); **Time Limits**—If the insurer cannot verify liability within 30 days of receiving the claim request and necessary materials, a reasonable timeframe is negotiated with the insured (determination made and communicated within the agreed period; payment obligation fulfilled within 10 days of reaching an agreement on the amount for covered losses); **Statute of Limitations**—The claim period begins on the date of the insured event and lasts for a maximum of two years; **10-Day Window**—Upon arrival of the insured goods at the consignee’s first local warehouse or storage facility at the destination specified in the insurance certificate, the insured must apply to the insurer’s local office and jointly inspect the damaged goods within 10 days; **Right of Recovery (Subrogation)**—If the loss is caused by the carrier or another third party, the insurance company may require the insured to sign a Letter of Subrogation (transferring the right of recovery against the liable party to the insurance company; the insured must assist by providing evidence). In summary, the claims process involves six key aspects: a five-step procedure, four categories of documents, a 30-day verification and 10-day payment window, a two-year statute of limitations, a 10-day inspection period, and the Letter of Subrogation.
Conclusion
How should one purchase export insurance for automation equipment components?
The conclusion is to determine the approach based on five dimensions: the policyholder, the type of coverage, the insured amount, the timing, and the claims process.
Insurance Arrangement: Under CIF/CIP terms, the seller arranges insurance and pays the premium; under FOB/CFR/EXW terms, the buyer is responsible. If the seller arranges insurance under FOB terms, the contract must specify the terms, insured amount, coverage type, and premium liability. The seller must purchase—at their own expense—cargo insurance compliant with ICC(C) standards from a reputable insurer. For CIF shipments, the buyer may request an insurance certificate and specify ICC(A) coverage; for large-scale exports, export credit insurance may be added (SINOSURE has paid out over US$27.9 billion in cumulative claims). Coverage Types: Basic risks include FPA (Free from Particular Average), WPA (With Particular Average), and All Risks; additional risks are categorized into general and special additional risks (with 11 types of general additional risks, such as theft and non-delivery). my country commonly utilizes the PICC “Marine Cargo Insurance Clauses (1981)”; CIF terms typically provide only the minimum ICC coverage.
For “C” terms (CIF/CFR), if the buyer requires additional “all-risks” coverage, the specific insurance type must be clearly stipulated in the trade contract. Regarding the insured amount: it is calculated as CIF value × (1 + markup rate); industry practice uses (CFR) × 110%, with a markup typically at 10% (not exceeding 30%); to convert a CNF quote to CIF, use the formula CFR / [1 – rate × (1 + markup rate)]. Insurance premiums are calculated as Insured Amount × Rate (ranging from a few parts per ten thousand to a few parts per thousand of the cargo value). The insurance currency and markup percentage must align with the Letter of Credit (LC); if unspecified, 110% is the standard. Timing: Insurance must be arranged before the vessel sails to avoid disputes over backdating or claims; it must be completed before loading/shipment to avoid coverage refusal; pay attention to deductibles and franchise rates; and ensure coverage is based on 110% of the cargo value. Enterprises with high annual shipping volumes can sign open cover agreements to negotiate rates. For CIF, the insured party is the LC beneficiary; for FOB, it is typically the consignee. Required documentation: for sea freight, provide Bill of Lading details or commercial invoices; for air freight, provide Air Waybill details or commercial invoices. Claims process: five steps—emergency mitigation, timely reporting, document submission, cooperation with inspection, and confirmation of settlement. Claim documents include the insurance policy, waybill, cargo receipt, delivery order, invoice, and carrier’s freight records. Claims must be assessed within 30 days of receipt and settled within 10 days (or a reasonable timeframe negotiated for complex cases). The statute of limitations for claims is two years from the date of the incident. Inspection for damaged goods must be requested within 10 days of arrival at the first warehouse at the destination port.
If the insurance company pays for damage caused by the carrier’s liability, a “Letter of Subrogation” is signed, transferring the right of recovery.
In summary, regarding export insurance: CIF is insured by the seller, FOB by the buyer, the insured amount includes a 10% markup, and insurance is arranged before sailing—master these four points for worry-free protection.
