TT Club warns logistics operators against inadequate insurance cover
16 June 2006
Insurance providers are struggling to keep pace with changes in the logistics industry and need a new approach to understanding risk in the light of today's logistics contracts. Mike Foster, Regional Director of TT Club, warned at a recent Logistics Law Seminar in London that the principle insurance purchased by logistics operators today is still based on a model for freight forwarders that has evolved little in the last 30 years.
As a result, he said, logistics operators were, in many cases unwittingly, running grave risks that their insurance cover could prove wholly inadequate against claims brought by their customers.
Calling for more underwriters to assess risk on present-day contract criteria and for a greater understanding by operators of the risks implied by their contract terms, Mr Foster blamed the undermining of the near-universal acceptance of standard trading conditions (STCs) that used to underpin the legal and insurance framework.
"The traditional forwarder accepted risks in relation to his customer's goods, which he limited through his STCs and against which he insured, retaining little risk for his business," stated Foster. "But for the logistics operator, the bounds are not so set. Liability for goods does not cease at the customer's gate: it may extend to delivery to the production line. He may even be part of the extended production line, with pre-delivery inspections now trumped by minor assembly work. What implication does this have for risk and insurance?"
Responding to the changes in logistics operators' liabilities, TT Club has developed model contracts to assist operators to minimise risks in their contracted services. "The logistics operator needs a process that continually assesses his exposure to risk in the light of the contracts that he is considering and the activities he may undertake," Mr Foster explained. "In turn, the insurer of logistics operators needs to be able to verify the assessment of risk, using as his starting point the obligations in the logistics contract. "
Mr Foster recommended that, when considering the section of the contract that addresses liability for goods, logistics operators should keep some guiding principles in mind:
- Operators should find out the cost that the risk represents before pricing the contract.
- It is unlikely that operators will be back-to-back with their carriers and other sub-contractors in accepting liability on an "all risks" basis. The gap in liability may be profound.
- If these issues are not on the table in contract negotiations, someone has not understood the risk.
Mr Foster added: "It is surprising how often the TT Club is asked to approve contracts, which have already been signed, where the expected revenue is insufficient to pay any additional premium required."
ENDSFor further information please contact:
Ian Lush, Marketing Director, TT Club
Tel: +44 (0) 20 7204 2642
Peter Owen, ISIS Communications
Tel: +44 (0) 1737 248300
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