Claim case sharing
How to calculate an appropriate sum for cargo insurance? - Part 1
With China’s economy growing rapidly from strength to strength, manufacturers’ demands for machinery are also on the rise. As a result, cargo insurance for the transportation of machinery is even more important.
Mr. Chu transports used machinery from Europe to China and uses the market value of the machinery (HK$200,000) to be the sum insured for cargo insurance. Unluckily, the machinery is damaged in transit and Mr. Chu files a claim with his insurance company which deducts 20% from his compensation. Why was Mr. Chu’s compensation reduced?
Some people may not be aware that their cargo is under-insured as they usually take the market value of their cargo to be the sum insured. Unintended under-insurance is especially common when taking out cargo insurance for transporting used or second-hand goods.
The insured should disclose to the insurer that the goods are used goods when taking out cargo insurance. Customers are also advised to check that the sum insured is the new replacement value of the used machinery at the final destination and also add all freight, landing charges and duty into the sum insured. If the insured does not take these precautions and the market value of used goods is less than that of new replacement goods because of depreciation or partial loss, an “average” may be applied and the insured may need to bear some loss.
The rationale behind this is that if the gross value of the goods arriving at the destination is higher than the sum insured when loss arises, the insurer may consider it as under-insured and may apply an “average”. Compensation will be deducted in proportion to the amount of under-insurance and the insured may need to bear the difference as a loss.
To safeguard against any unintended under-insurance, please contact your MSIG account handler for further assistance.