Reassess insurance cover as part of supply chain security measures, says TT Club

10 January 2005

Too many transport operators, from NVOCCs and logistics providers to terminal facilities, are worryingly uninformed about the extent of their insurance cover, the TT Club has warned. Speaking at a recent transport industry conference in Chile, C Daniel Negron, vice president in the Americas for the Bermuda-headquartered mutual insurer, urged all operators to review their current insurance programmes to ensure that their liability risks are adequately protected.

Referring to the raft of security legislation now in place, especially on shipment routes touching the United States, the Club is concerned that, even three years after September 11, 2001, not all operators understand the changed security and insurance landscape.

Mr Negron drew specific attention to some of the more prominent security-related legislation such as the Bioterrorism Act, the 24-hour Advance Manifest Rule and the International Ship and Port Facility Security (ISPS) Code, and spelt out the potentially business-threatening risks to operators throughout the supply chain.

"Recent security initiatives have put the responsibility for anti-terrorist measures on all participants in the transportation process, from shipper through to receiver," said Negron. "In the event of a terrorist incident, every link in the chain will be the focus of intense scrutiny. Companies would be well advised to ensure they can withstand that scrutiny," he added.

Mr Negron highlighted typical risks emerging from the security regulations: detention delays, financial losses, death and bodily injury and property damage.

"For example, there is a great risk of exposure to third party cargo interests for loss of market or other consequential loss resulting from an incorrect declaration on a manifest. Since there is no direct relationship between an NVOCC and third party cargo owners, there is no benefit of a limitation of liability," Mr Negron pointed out.

"In that every shipper with a consignment on a delayed vessel can potentially assert a claim for 'loss of market' on the value of his merchandise, on a 3,500 or 4,000-plus TEU ship, the potential exposure can be significant," he said.

The Club is warning that insurance cannot be viewed as a substitute for good business practices. Rather, it is one part of a comprehensive loss prevention program.

In structuring an effective insurance and risk management programme, one which provides the maximum benefit at the most efficient cost, operators must be mindful of the extent of their insurance coverage, and must take affirmative steps to address their potential exposures to liability, the TT Club says.

To that end, all operators should review their current insurance programme, to ensure that their liability risks are adequately protected.

"Today, perhaps more than ever, the transportation industry will be required to engage in loss prevention initiatives as part of an effective insurance and risk management programme," was Mr Negron's summary. "But by undertaking these measures before an event takes place, it will be in a better position to address the event after it has occurred," he concluded.

ENDSNotes for editors

The TT Club is the international transport and logistics industry's leading provider of insurance and related risk management services. Established in 1968, the Club's membership comprises ship operators, ports and terminals, road, rail and airfreight operators, logistics companies and container lessors. As a mutual insurer, the Club exists to provide its policyholders with industry-leading benefits, which include specialist underwriting expertise, a world-wide office network providing claims management services, and first class risk management and loss prevention advice.

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Staff Author

TT Club