Why Marine Insurance Is Key for Risk-Prone Import Business

Importing goods has become the norm for many business people who rely on goods from overseas to sustain their businesses locally.

There are many potential risks encountered along the journey and unbeknownst to many, the danger can be averted through marine insurance whose solution takes care of all potential risks whenever goods are moving from the import source to destination.

Many businesses, however, according to CIC Risk Group Manager, Douglas Chepkuto, are either ignorant or unaware of insurance solutions that protect them against losses especially occasioned by delays in shipment.

Some of the main risks include water damage, theft, fire, tsunami, tornadoes in addition to other complex ones like salvage and liability charges which may force an importer to incur costs.

Chepkuto, in an interview with Capital FM Business, decried low uptake of marine insurance solutions amongst importers whom he noted would instead opt to be penalized by the Kenya Revenue Authority (KRA) instead of insuring their products.

Despite being higher than the insurance fee, he decried that many importers still prefer paying the former.

"Whenever you have not insured your goods, KRA will penalize you, they will charge you a certain amount, and load it to the cost and freight figure so that they get the customs value for purposes of taxation," he said.

"The challenge is that some customers prefer to be penalized than buying insurance, it's higher than insurance. If you insure your goods, you will not be penalized and will benefit whenever there is damage," he added.

Ignorance, lack of awareness are some of the reasons blamed for such occurrence, he said, raising concern that some businesspeople also unnecessarily opt for foreign insurers and subsequently incur more charges.

With foreign agents, he said, importers get subjected to double insurance with the solutions which do not extend beyond the point of destination, unlike local ones which cater for goods from warehouse to warehouse.

In a bid to increase the uptake of marine insurance, especially among Small and Micro Enterprises (SMEs), CIC Insurance has partnered with consolidators and cooperatives who liaise with SMEs dealing in cargo imports.

Consolidators are companies that offer freight tickets for small-scale importers.

"In appreciating that the uptake of marine insurance is still low, we have expanded distribution lines through agencies, we are partnering with stakeholders, members of the maritime community, including consolidators, and that, is where we have the least penetration," he added.

The low intake has also been blamed on COVID-19 which saw a reduction in imports that subsequently forced businesspeople to put a hold on their enterprises in order to prioritize their basic necessities.

RISKS INVOLVED

Whenever a ship develops mechanical damage, an importer will be forced to incur Salvage costs which will cater for the cost of towing the vessel to the nearest port.

Salvage costs are usually shared among all those with goods on the container and can cost up to 20 percent of one's value of goods.

"If you don't have insurance, goods are held as collateral until the amount is paid," he said

In addition, an importer may incur liability costs that come in whenever two ships collide, the importer will have to co-pay for the repairs of the two ships.

Unlike other insurance products, marine insurance is an all-in-one solution that caters to all potential freight risks.

In order to get started with CIC, a client would only be required to provide a commercial invoice that indicates the nature of goods and their destinations.

The insurance costs vary from goods with ceramic, glassware, electronics, pharmaceuticals being among those falling under the high-risk category while heavy machinery is among those within the low-risk category.

The rates for sea freight range from 0.2-0.3 percent of the total value of goods, higher than air freights which costs 0.15 to 0.25 percent of the total value of goods.