More forward thinking

More forward thinking | Insurance Business

More forward thinking
Freight forwarding remains one of Australia's largest and most critical sectors.

With the technological advancements in logistics, it's less common today for freight to go missing. But when things do go awry, consequences can be far-reaching and incredibly costly.

Forwarders can be held liable for third party losses, loss or damage of cargo, and breaches of regulations. Ultimately, losses can run so high that a forwarder, without adequate insurance, can be put out of business. Brokers, therefore, need to ensure their clients have sufficient cover in place so that in the event of such a loss scenario, theirs and their client's businesses will be protected.  

From the time initial advice is sought on freight forwarding liability insurance, brokers must facilitate a strong and transparent dialogue with clients about the true nature of their clients' businesses, according to George Midas, managing director of Midas Insurance Brokers, who's specialised in freight insurance for three decades. Sometimes, a 'freight forwarding' business encompasses aspects that extend well beyond the traditional responsibilities of a forwarder.

"It's our duty to know exactly what they're doing because they may have three arms in a business," Midas explains, identifying those arms as customs clearance, movement of goods, and logistics of goods. "We ask specific questions, with no ambiguity, to draw that information to understand the risk," Midas says. "If there is ambiguity in their reply, you ensure you get the question answered properly."

For several years, Midas's brokerage has enjoyed a mutually beneficial partnership with Zurich. "We're one of the largest marine underwriters globally," says Matthew O'Sullivan, Zurich's head of marine. "But in an area like freight forwarding, in Australia particularly, we exclusively deal with a specialist because we know that freight forwarding and customs broking is a very tricky area. If we don't get everything right, we can be up for some surprises that we really don't want to have."

O'Sullivan agrees with Midas on the need for strong dialogue from the outset. "It's not a matter of taking the freight forwarder's policy off the shelf and the broker saying, 'Therefore you're covered'. If there's not that informed dialogue between the broker and the client, and the broker and the insurer, from the very beginning, that's really where the problems can arise."

Exposures not dealt with in off-the-shelf policies can potentially place a freight forwarder in a disastrous situation, and those exposures can go undetected for many years. "That only gets tested when there's a loss," O'Sullivan says. "You can have a period of five years where the policy is loss-free, and everyone thinks 'this is going along swimmingly'. And then the big hit comes - 'by the way, you may have problems with the policy responding to this loss'."

O'Sullivan says that, when organising freight forwarding insurance, Zurich will seek the terms and conditions of the agreement between the forwarder and the forwarder's customer to precisely ascertain the extent of the forwarder's liability. "They could be absorbing or accepting all liability for damage or delay, or they could have in their own contract terms some restrictions."

O'Sullivan thinks many brokers, and even insurers, wouldn't seek the forwarder's terms. "They assume that there are standardised terms and conditions, and they just say, 'He's a freight forwarder, so therefore we're covering him for the liability he's exposed to - the movement of people's cargo'.

"It's not as simple as that because the liability is as varied as it can be in any legal jurisdiction. He could be absorbing a lot of liability; he could be absorbing storage, he could be doing the packing and unpacking, there could be transhipment, there could be a whole raft of exposures there."

How effective a broker can be in a claim situation will be determined by the quality of the groundwork they've undertaken in the initial stages while arranging cover. "That is where we can clearly identify what risks and exposures are around certain commodities, certain types of businesses and destinations, from an exporting or importing point of view," O'Sullivan says.

"If you get that right, it's really then only the true fortuitous-type losses, the real unforeseen losses, that happen."

And in those circumstances where a forwarder does report a potential loss, Midas says it's important for brokers to act quickly but calmly. "Whatever we do, we don't panic. Sometimes, it's nothing."

Where it is something, Midas says brokers should immediately begin putting together the relevant documentation and communicating with the underwriter. "We don't sit on the claim form," Midas says.

On dealing with the client, he says: "They don't want sympathy; they want empathy. You've got to be calm and collected and attentive to what you hear so that you understand what happened."

From the insurer's perspective, O'Sullivan says the focus is on trying to ensure mitigation of the loss. And in some instances, fast work means the relevant goods can be recovered in mint condition.

"Our ultimate goal is to continue the business of the insured. We want to keep their business going. So if there's a way we can avoid a claim or limit the quantum of a claim. That’s better for everybody."

Brokers' ongoing engagement with the forwarding industry is also paramount. Midas visits London regularly, in order to stay across key updates affecting the international industry. He also raises the importance of educational qualifications.

On the compliance regulation front, a clear understanding of the behaviours and standards expected by the relevant local authorities is key for specialist freight insurance brokers. Discussing their own activities on this front, Midas says: "We have started as partners - Midas and Zurich - a dialogue with Australian Border Force to understand their policies. We are engaged, in other words."

Midas and Zurich's partnership has, for years, been efficacious. "I would almost put my hand on my heart and say George would have a fundamental understanding of what our approach would be during a time of a claim," O'Sullivan says. "If a client rings him up and says, 'George, I've got a problem here', George is going to know straight away, 'Yes, that's fine. No problem. We'll take care of it', or very rarely, he might say, 'We're going to have a bit of an issue here.'

"That would rarely happen because we have that relationship."