Where and How: Accurately Assessing Cargo Risk

By Derek Stedman, Lead Modeler, Risk Management Solutions, IUMI Professional Partner,

Catastrophe risk is highly variable for the same goods stored in different ways—both by peril and storage type.

For example, consider a car stored at a port a) in a container or b) in an open lot. For case a, the car is protected from rain, hail, and surge, as it is likely in a stack of containers and elevated above ground level. However, in the event of an earthquake, the shaking may cause the container with the car to fall off the stack of containers, causing damage. The car in case b is unprotected from rain, hail and surge damage, but will experience minimal damage from an earthquake, which will simply shake the car – an object which is designed to handle vibrations/movements.

Given this stark difference in potential damage, knowing how cargo is stored and shipped is vital; second only to accurately assessing the type of goods being stored and shipped. These two pieces of information provide an underwriter with a much clearer view of the risk and allows for a more accurate assessment of the risks involved.

Different companies will ship the same goods with different levels of protection, Company X, which sells high-end electronics may ship their products in watertight, airtight packages; while Company Y, which sells mid to low-end electronics, may simply ship their products palletised in cardboard boxes. If both companies are shipping their products through the Port of New York, and a hurricane with significant surge occurs, Company X’s products, which are protected from water intrusion will experience less damage than Company Y’s products.

How goods are packaged and protected from damage has a significant impact on damage when an event occurs.

The type of damage, in turn, can vary greatly by peril. Thus, along with accurately recording the type of cargo being insured, knowing the storage method and packaging/protection applied to the goods is key to accurately assessing catastrophe risk for cargo. This small effort in assessing the state of cargo exposure can lead to greater risk differentiation and improved underwriting selection.

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