Insurance Gap in Goods Transportation

INSURANCE GAP IN GOODS TRANSPORTATION

The accident rate that the market does not see (or cannot see) that could exponentially boost cargo insurance.

From the Alsum Cargo Committee, we have proposed to develop by 2023 a series of thematic axes aimed at proposing content that adds value to the insurance market and the promotion of freight transport insurance.

Among them, the Insurance Gap stands out, or more directly, proposing ideas and promoting discussions to increase (I would say recover) the prominence of insurance as a relevant actor in current logistics and generate greater volumes of premiums.

Before delving into developing what I consider could be a contribution to this discussion, I would like to clarify that I do not ignore or underestimate in any way the technical logic that gives meaning to the setting of deductibles and deductibles, nor the basic principle of the technique. insurer that establishes that only risks and not certainties are insured.

But it happens that there is an enormous frequency of accidents under the insurance radar that, viewed from a risk management perspective, could significantly increase cargo insurance premiums, as we will see below with a specific example: the transportation and distribution of home appliances.

The global market for household appliances will exceed 600 billion dollars this year and according to specialized consultancies and our own investigations, it is estimated that 2% of the products arrive with damage to large stores, which represents a direct loss of approximately USD 12,000 million annually and an indirect that rises between two and three times that figure, that is, between USD 24 and 36,000 million. (I leave it to the reader to calculate the potential premium we are talking about).

We are not talking here about the usually insured accident rate of losses due to theft or accident of the means of transportation, but rather about frequent losses that rarely have any type of coverage.

Now, how could we convert this accident rate into coverage that attracts those billions of dollars to the insurance market?

The first thing we have to know to give an effective answer to this question is that today there are devices that allow us to identify with great precision the location and intensity of the impacts suffered by goods during their transportation and distribution. In other words, by knowing a priori the potentially damaging impact force, in the event of an accident with this technology we could identify where, how and when a breakdown occurred.

Based on our experience, based on empirical tests, we have been able to verify that when it comes to medium to large-sized appliances, sudden acceleration or braking of the conveyor, especially on routes with winding geographies, is the main cause of breakdowns followed by lack of care in handling the products.

The good news is that thanks to the decreasing cost of technological devices and applications, with a reasonable investment, road behavior and good cargo handling practices can be monitored, and thus highly effective loss prevention programs can be developed.

Experience indicates that putting all actors in the logistics chain under supervision modifies their behavior, which translates into a significant reduction in accidents.

This point is the key to understanding why insurance has a role to play, which consists of applying its know-how in risk management to reduce accidents, generating the space to obtain a benefit for it.

This is just one example, but there are more, such as the multimillion-dollar losses caused by e-commerce logistics operations (it is estimated that 15% of products are returned due to damage) or those derived from the lack of control of the cold chain. .

Surely the reader, after reading this article, will come up with some more examples.

Much has been written about the fact that to achieve greater penetration, insurance should increase the frequency of contact with the insured and to do so migrate towards a service provider model, instead of appearing only occasionally in the event of an incident. This has been developing very well in home and automobile coverage, which includes a wide and highly valued variety of benefits beyond compensation, but it practically does not exist in cargo insurance, except for large risks or project loads. where the insurer usually has a more active participation.

It makes sense that frequency is not attractive to insurers and therefore the response is to set high deductibles, but the consequence is that the client is neglected where they need us most, especially with the profound changes that are taking place in the world of logistics.

This more committed approach to risk would not only be a significant source of new income for the insurance market but would also contribute to strengthening and improving the image of insurance as an ally that provides high value-added solutions.

Now, who in the insurance ecosystem should be the main actor, the one who should ignite the engine of change?

I think that here we are going to agree that the leading role is played by the intermediary (Broker, Producer or Agent) since he is the professional who is in direct contact with the client and who has the fundamental role of advising him for the best management and transfer. of the risk.

I have no doubt that the good underwriter, with adequate information, will see in this combination of insurance with risk management, a good opportunity to grow cargo insurance in a sustainable way.