Transport insurance (goods): Incoterms, liabilities and hidden losses

Introduction

For an SME engaged in national and international trade, freight insurance is not just an abstract accounting line, but a cornerstone of logistics risk management . It protects your assets against damage, loss, or theft occurring between the departure and arrival of goods. However, without clarifying who is responsible at each stage of transport , what your insurance actually covers, and where "hidden losses" lie, you risk unpleasant surprises in the event of a claim. After reading this, you will be able to decide which Incoterms to use, document your responsibilities, compare insurance options, and prepare for a structured dialogue with your insurer or broker.

Section 1: Freight Transport Insurance – Framework and Objectives

What is freight insurance?

Cargo insurance aims to compensate the owner of goods against material risks incurred by the merchandise during its transit, regardless of the mode (road, sea, air, rail): loss, theft, damage. It transfers the financial impact of a claim to an insurer, limiting your company's exposure to operational and financial disruptions.

Types of covers

Insurance can take many forms:

• Carrier liability : covers only the carrier's legal obligations (often limited, for example according to CMR for road transport).

• “All risks” coverage : protects against a wide range of damages, subject to the exclusions defined in the policy.

• Open cargo insurance : covers all shipments over a given period, useful if you organize regular transport.

Section 2: Incoterms and Allocation of Responsibilities

Incoterms: definition and role

Incoterms (International Commercial Terms) are standardized rules established by the International Chamber of Commerce (ICC) that define the obligations, costs, and risks between buyer and seller during the transport of goods . They do not constitute insurance in themselves, but clarify when the risk of loss or damage passes from one party to the other .

Risk transfer point

Each Incoterm defines a point at which risk is transferred : up to this point, the seller bears the risk; beyond this point, the buyer assumes it. This information is crucial for deciding who should take out insurance and to what extent.

Incoterms with mandatory insurance

Only two Incoterms formally impose an insurance obligation:

• CIF (Cost, Insurance and Freight) : the seller must obtain minimum insurance covering risks up to the port of destination.

• CIP (Carriage and Insurance Paid to) : similar to CIF but applicable to all modes of transport and requires broader coverage according to Incoterms 2020.

For other Incoterms (EXW, FCA, FOB, DAP/DDP…), the obligation to insure is not imposed by the term itself: it is a commercial arbitration to be explicitly documented in the contract to avoid grey areas of responsibility.

Section 3: Practical scenarios for arbitrating your hedging strategies

Scenario 1 – Exporting SME with CIF

A Geneva-based SME regularly exports to the EU via CIF. According to Incoterms rules, the seller (the SME) must take out insurance covering the goods during transport to the port of destination. The insurance contract must clearly define the scope and deductible, as well as the documentation required (policy, bill of lading, invoice) so that a buyer can assert their rights in the event of a claim. This scenario illustrates the importance of insuring at least the minimum required coverage , while also assessing, through internal arbitration, whether broader "all risks" coverage is justified based on the value of the goods.

Scenario 2 – SME buyer with FCA or FOB

An SME will import components under FCA or FOB terms. Here, the point of risk transfer occurs early : as soon as the goods are handed over to the carrier or upon crossing the ship's edge. Without additional coverage, the company bears the full cost of any losses after this point , even if the carrier has limited legal liability. The solution lies in managing an open cargo insurance policy or an internal policy extension to cover the interim phase up to final delivery.

Section 4: "Hidden" Losses: What Insurance Doesn't Automatically Cover

Risks not included in standard policies

Many insurance policies exclude certain risks without an explicit clause:

• indirect financial losses”, such as operating losses related to a delivery delay;

• damage due to errors in packaging or documentation;

• damage caused by failure to comply with packaging or handling standards.

It is essential to read and compare exclusion clauses and adjust options (extensions, endorsements) to fill these gaps.

Administrative and documentary losses

Inadequate documentation (inaccurate description, incorrect value, lack of proof of transport) can lead to a denial of compensation or partial payment. Accurately documenting each shipment—with proof of value, transport contracts, receipts, and photos—is an essential tracking step.

Guidelines and checklist for managing transport insurance

What needs to be documented

• Commercial contract with Incoterm clearly indicated.

• Detailed description of goods, value and packaging.

• Transport contract and bill of lading.

• Insurance policy or certificate with scope of risks and exclusions.

• History of claims and reports of previous losses.

• Internal assessments of franchises and limits.

Decision checklist

| Question | Guided action |

| Incoterm | Verify documented risk transfer point |

| Insurance liability | Confirm who should subscribe and to what extent |

| Required Coverage | Compare "comprehensive" vs. mandatory |

| Exclusions | Identify hidden losses and options |

| Documentation | Standardize files to be provided in case of a disaster |

Common mistakes and how to avoid them

Error: assuming that the carrier's insurance is sufficient

The carrier's legal liability is often limited and depends on the transport contract or international conventions (e.g., CMR). Without dedicated cargo insurance, losses exceeding these limits will remain your responsibility. Solution: purchase appropriate supplementary insurance.

Error: not aligning the Incoterm with the insurance

An Incoterm like EXW places almost the entire burden of transport and insurance on the buyer. Without contractual adjustments, SMEs are left exposed if they haven't planned for coverage. Solution: explicitly document insurance obligations in the terms of sale.

Error: neglecting indirect losses

Many policies exclude business interruption losses or additional costs. Solution: assess the potential impact of these losses and consider coverage extensions if relevant.

Questions to ask your insurer/broker

1. What is the exact scope of the "all risks" coverage in the proposed policy?

2. What specific exclusions apply to goods shipped under different Incoterms?

3. How is the deductible calculated for different types of claims?

4. What documents must absolutely be provided for a quick settlement of a claim?

5. Does the policy cover indirect losses (delays, contractual penalties)?

6. Is the coverage uniform regardless of the mode of transport?

7. How to address the discrepancies between the carrier's legal liability and cargo insurance?

8. What levels of coverage do you recommend depending on the value and type of assets?

9. Can you provide a comparative cost/benefit analysis for key extensions?

10. How to integrate regular open fonts versus specific fonts per submission?

Conclusion

To effectively manage your cargo insurance , you need to understand how Incoterms allocate risks and responsibilities , identify where losses not covered by default lie, and structure a decision-making and documentation process to balance your coverage and costs. The preparation effort—choosing the right trade terms, ensuring complete documentation, and communicating effectively with your insurer or broker—will result in more robust risk management and an increased capacity to absorb logistical shocks without major disruptions.