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Chapter 4

INSURANCE IN FOREIGN TRADE

 Objectives of Chapter 4

❖ Understanding about cargo insurance in foreign trade. Classify the

types of risks covered by insurance, compensated losses and
conditions for purchasing insurance.

❖ Mastering the cargo insurance and markets in foreign trade,

choosing appropriate insurance products in foreign trade business
situations.

❖ Proficient in purchasing insurance, understanding the

responsibilities and rights of insurance buyers, how to claim
compensation and compensation procedures when there is loss of
goods in foreign trade.

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 Cargo Insurance in foreign trade

Insurance means a commitment of the insurer to indemnify the

assured against damages and loss due to agreed risks corresponding
to a paid insurance premium.
 Risks in cargo insurance

Insurance is the insurer's commitment to materially

compensate the insured for damage and loss of the
insured object caused by agreed risks corresponding
to an insurance premium.

❖ Insured company

❖ Insured object

❖ Agreed risks

❖ Damage/loss

❖ Insurance premium
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 Types of risk

Based on the Based on Insured

source of the risk risks
• Natural disasters: (Act of God) • Normally insured risks
• Maritime Risks (Perils of the • Individually insured risks
sea) • Uninsured risks
• Other types of risks

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 Loss in cargo insurance

Losses are damages of the insured object

due to risks

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 Types of losses in cargo insurance

❖ Based on the level of loss:

❖ Partial loss is part of the insured object that is damaged or lost

❖ Total loss means the whole insured object has been damage or
irreparable or be used.

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 Types of losses in cargo insurance

❖ Based on the characteristics of loss:

❖ General loss: is a loss to general security, a sacrifice to the general

good or a general harm.

❖ Private losses: loss and damage of the insured object due to an

accidental, incidental risk. For whom this loss occurs, the person
will suffer loss.

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 Types of cargo insurance

Exclude private loss

London Insurance Include private loss
Institute Include all risks

Institute Cargo Clauses C

1963 (ICC) Institute Cargo Clauses B
Institute Cargo Clauses A
( + 18 exclusion risk condition and exclusion risk < 3%)

Institute Cargo Clauses C

1982 (ICC) Institute Cargo Clauses B
Institute Cargo Clauses A
Institute War Clauses
Institute Strike Clauses

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 Discussion

❖ A company purchases Cargo Clause A insurance

according to ICC 1963 for 100% of the goods value of
$100,000. During transportation, if $2,900 worth of
goods were lost, how much compensation would the
company receive?

❖ In case of loss of $5,000 in goods, how much is the

compensation amount?

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 Types of cargo insurance

❖ According to ICC 1982: In 1982, a clearer classification

from basic to various forms of insurance was introduced,
including:
✓ Institute Cargo Clauses A
✓ Institute Cargo Clauses B
✓ Institute Cargo Clauses C
✓ Institute War Clauses, cargo applied to goods transported
by sea
✓ Institute Strikes Clauses, cargo applied to goods
transported by sea
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 Institute Cargo Clauses C

❖ Covered risks include:

✓ Fire or explosion

✓ Ship or barges were stranded, sunk or capsized

✓ The ship collided with other vehicles or objects that were not water or were missing

✓ Unloading at the place of refuge

✓ Road vehicles were derailed or subverted

✓ Sacrifice for general losses

✓ Throw the goods into the sea

❖ Losses, expenses and liability of the insurer

✓ General losses and rescue costs are calculated and distributed according to the contract of
carriage and / or according to applicable laws and practices.

✓ Both to blame collision clause: The insured's responsibility when both ships collide and
both are at fault 12
 Institute Cargo Clauses B

❖In addition to the risks covered under condition C,

there are also the following additional risks:
✓ Earthquakes, volcanic eruptions, lightning strikes
✓ Water pulled goods from the ship
✓ Sea water, rivers and lakes flowing into ship tunnels,
barges, means of transport, containers or cargo places
✓ Total loss of any package that falls from the ship or
falls during loading, unloading on board and barge

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 Institute Cargo Clauses A

❖Contents of institute cargo clauses A are:

✓To be compensated for any loss, damage or
expense of the insured object except for
exclusion risks such as conditions B and C.
✓In addition, there are additional conditions to
be compensated for risks caused by
intentional damage or vandalism not caused
by the insured.

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 Question

During a sea voyage, the ship crashed. At the port of destination, the
loss of goods is as follows:

Goods burned by lightning, damaged $3000

Goods soaked in rain, damaged 1000 USD

10 parcels worth $2000 fell onto the wharf during unloading at the port
of destination, with a loss of 50% of the value

Goods were dropped due to damaged packaging, loss of 500 USD

The cost to replace the damaged packaging is 100 USD

Contribution to the general losses of the shipper is 2000 USD

How much is the shipper indemnified if the shipper is insured

under conditions A, B or C – ICC 1982. 15
 General exclusion risks

❖ Loss, damage or expense due to the insured's willful act

❖ Normal leakage, normal loss in weight or natural erosion of the matter of insurance
❖ Loss, damage or expense due to incomplete or inappropriate packaging
❖ Loss, damage or expense due to inherent vice or the nature of the matter of
insurance
❖ Loss, damage or expense as a direct cause of delay whether or not the delay is
caused by a covered risk
❖ Loss, damage or expense due to the ship's inability to repay debts or financial
deprivation, ship managers, charterer or operator.
❖ Deliberate damage or intentional destruction to the matter of insurance by the
wrongdoing of any person
❖ Loss, damage or expense resulting from the use of any war weapon involving
nuclear or radioactive energy.

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 Excluded risks due to transportation

❖Insurance does not cover loss, damage or expense

caused by:

❖Ships or barges are incapable of sailing;

❖Ships, barges, other means of transport, containers,

wagons are not suitable for safe transport of goods for
which insurance buyers or their employees know the
conditions mentioned above when loading goods onto
those vehicles and transport tools.

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 Risks excluding war risks

❖ In no case shall compensation for loss, damage or

expense resulting from the following:
❖ War, civil war, revolution, rebellion, insurrection or
hostile action caused by or against a force to fight.
❖ Captured, confiscated, arrested, restrained (not including
pirates), and the consequences of such actions
❖ Bombs, mines, torpedoes or other war weapons left over
from battles.

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 Risks excluding strike risks

❖ In no case shall compensation for loss, damage or

expense resulting from the following:
✓ Strikes, banned workers, or anyone involved in a labor
disorder, violence or civil rebellion
✓ Strikes, factory bans, labor disorders or civil riots
✓ Terrorist or anyone acting on political motives

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 Insurance value, insurance amount and
insurance fee

1. Insurance value = value of the matter of insurance at the

beginning of insurance + insurance fee + other expenses
• Insurance value of goods = Cost at the port of departure (C) + insurance
fee (I) + freight to port of destination (F) = CIF or CIP price
• When exported under FOB or CFR terms, the insurance value is calculated by
the CIF of the item.
• To ensure benefits, the insured can also insure the expected interest of the
import and export.
• Therefore, the insured often buys insurance value = (100% + 10%) of CIF or
CIP price
1. Insurance fee (I) is calculated according to the ratio of insurance
fee (R) or insurance rate: this is the price set by the insurance
company and depends on the nature of the goods or means of
transport that R is high or low.
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 Calculation of premiums and conversion
of FOB & CIF prices

❖ Premium = Premium rate x base value of insurance product. The

calculation formula is I = R. CIF
❖ Base value of insurance products = Value of initial goods +
Insurance fee + shipping fee. The calculation formula is CIF = C
+I+F
❖ When the value of the insurance product's base is not expressed or
incomplete in the foreign trade contract, it shall be calculated as
follows:
❖ CIF = C+I+F change I = R.CIF we have: CIF= C+R.CIF+F
✓ Therefore, CIF - R.CIF = C + F or CIF (1-R) = C + F
✓ So CIF = (C + F) / 1-R
✓ And when buying under the condition of 110% of the value of the subject of
insurance we have: CIF = (C + F) / 1-1,1R 21
 Exercise

• 08/2023: A Vietnamese company imported Ariston

heaters from Italy, the import price was 80 USD
according to CIF terms at Hai Phong port.

• 10/2023: This company changed its purchasing method,

importing heaters at a price of 70 USD FOB Rome port.

• The premium rate is 0.5%, purchased under Clause A

(all risks) for 110% of value. Shipping cost is $6/piece.

• Question: How will the insurance company charge

premium in both of the above cases?
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 Extra insurance products

❖ War insurance conditions apply to goods transported by sea

(Institute War Clauses, cargo)
❖ War insurance conditions apply to air freight (Institute War
Clauses, air cargo)
❖ War insurance conditions apply to goods transported by post
(Institute War Clauses, sending by post)
❖ Conditions of strike insurance apply to goods transported by sea
(Institute Strikes Clauses, air cargo)
❖ Conditions of strike insurance apply to goods transported by air
(Institute Strikes Clauses, air cargo)

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❖ A shoe export company has an export order to
Rotterdam. Up to now, the Company has often exported
according to FOB Hai Phong (Incoterms 2010) which is
2.5 USD/pair of shoes. Partner company wants to quote
CIF Rotterdam; know that the shipping fee from Hai
Phong to Rotterdam for a 20-feet container is 4,000
USD; Insurance premium rate r = 0.5%, buy 110%
insurance at CIF price. Calculate the CIF price of
Rotterdam port for 1 pair of exported shoes mentioned
above. 24
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END OF CHAPTER 4

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