More than 300 years ago, inside a London coffee house buzzing with maritime chatter, the foundations of modern insurance were being laid.
At Lloyd’s Coffee House in the late 1600s, ship captains, merchants and early financiers met to exchange information and share the risks of long, uncertain voyages. By literally writing their names under the details of a voyage to take on part of the financial risk, these early underwriters formalised what would become the world’s first organised system of insurance.
That gathering point eventually evolved into Lloyd’s of London, one of the largest and most influential insurance markets in the world. While the risks of piracy and rough seas still exist, marine insurance has grown far beyond its nautical roots – now covering goods in transit not only by sea, but also by air, road and rail.
According to Brian Barreto, Director of Austbrokers City State Rail, understanding the full scope of marine insurance is critical for businesses operating in the transport, logistics and heavy haul sectors.
“‘Marine insurance’ refers to insurance of goods that are moved in transport and logistics, across the supply chain,” Barreto said. “So once upon a time, that was goods moved on ships, but things aren’t just moved by sea anymore – they’re moved by air, road and rail too.”
Unique risks
Freight moves through increasingly complex logistics chains, and each mode carries distinct risks.
“Moving freight by ship probably comes with the highest risks,” said Barreto.
“We’ve got parts of the world that have political unrest.
“There are terrorism threats, pirates and the temperament of the sea on top of that, which can cause containers to be lost.”
Barreto said rail is probably the second riskiest form of transporting freight, due to the large volumes carried.
“Trains tend to carry a lot more on board one journey versus a truck,” he said.
“As a result, there’s a higher quantum of risk.
“By contrast, transporting freight by air is relatively low risk, not just because it tends to move fewer goods but because globally, we’ve got high aviation standards.”
An overlooked form of insurance
Marine insurance is designed to provide coverage along freight’s entire journey – but Barreto warned that it’s often misunderstood or neglected by operators.
“A lot of clients will give their public liability insurance attention, they’ll give their material damage insurance a lot of attention, but marine insurance is overlooked,” he said.
“Then all of a sudden there’s an accident or a derailment, and there are issues with the coverage, because they didn’t give it proper consideration.”
Decades of experience
AB City State has been operating since 1984 and has specialised in logistics insurance since its beginnings.
Barreto himself has been in the industry since 1998 and said that the collective experience of AB City State’s staff is a major advantage for its clients.
He said a good broker will ask the right questions from the start, to make sure they understand all aspects of the coverage required.
“You need to make sure you know how things are physically being moved and handled, the security at each of those locations, and the value of the risk itself,” he said.
“Then you look at the contractual framework. That’s something that’s often labelled as simple to put together, but it’s not always the case.”
AB City State provides a level of attention to detail that, in Barreto’s view, makes the difference between a policy that protects, and one that falls short.
The firm works with clients across the full supply chain, and customises coverage based on how, where and by whom goods are being moved.
“We often remind clients that insurance doesn’t reset at each mode of transport, insurance must track the entire journey,” he said.
“Where do the goods originate from? Where do they end up, and what happens in between – that all needs to be captured. Because if you don’t get that right, potentially you have gaps in your cover.”
High value, high stakes
Barreto said many insurance brokers don’t have a full grasp of the practical realities of transport operations, and that’s where businesses can come unstuck.
For operators in high-value, high-risk sectors such as freight rail, the right marine insurance is more than a safety net, it’s a critical part of doing business.
Failing to understand the full scope of risk can lead to serious financial fallout.
Barreto shared a recent example of a client who engaged a cartage contractor to move some goods for them. “The terms and conditions of that engagement were that our client would be responsible to insure the goods, as the terms and conditions included a hold harmless clause.
“Unfortunately, there was an accident that occurred that was the fault of a third party. Therefore, there wasn’t any breach of duty by the cartage contractor towards our client.
“So, the loss of the goods was the responsibility of the third party, but that third party went into receivership, and it was not possible to make a claim against them.
“Our insured was also not able to make a claim against the cartage contractor because of the terms and conditions of that contract they entered into, so they were left with financial loss.”
When it comes to transporting heavy machinery or other expensive goods, the financial risks can be huge.
“You have businesses that are transporting the likes of rail tamping machines that cost millions,” Barreto said.
“We have a client who was transporting Black Hawk helicopters for a defence contract, they’re a few million dollars each.
“When something goes wrong, that could be quite a significant exposure.”
He said there are situations where if there are gaps in cover, it could lead to bankruptcy.
“You really need an experienced broker who is going to make sure that they’re covering all bases,” he said. “We’re here to help.”
