The Baltic Course  

Transport at your own risk

By Martins Etkins, EPI-LETA

Transport of goods is a serious business and like any other serious business it has a certain risk involved in its operations. Where there is a risk, there is also insurance at hand which bears the risk of potential losses. Due to the geographical location in the Baltic states, transport of goods has become one of the main sectors of the economy. However, for the time being insurance services are still rarely used

Priority on international goods

Among insurance companies cargo insurance is not the most popular activity. Today the majority of insurance companies work with the compulsory civil liability of drivers. It is also connected with the law as it applies to everything that moves and is on wheels. However, the insurance market gains a substantial profit from KASKO motor insurance as well as a considerable amount of premiums from property insurance, since there is more property than cargo.

Inese Minajeva, lawyer at Schenker BTL
Our company has its civil liability insured in accordance with the CMR convention. But our clients can also have cargo insurance. In reality clients use this option very rarely, it is mostly used by cargo owners that have already had accidents. Usually light but costly cargo, for example, female underwear is insured. At the top of the most often insured cargo is also exclusive furniture. Large companies, for example, Electrolux, Siemens and others always insure their cargo.

The quantity of cargo in the insurance market is rather changeable as the market is still in the process of formation. Even if some stability is reached for a time, everything can change at any moment. Prospects of the market of cargo insurance can be predicted considering the present situation when it is mostly transit and international cargo directly connected with the Baltic states that is insured, while insurance of internal movement of goods is insignificant.

The supplier or the buyer usually insures either goods that are exported or imported. Thus insurance of such cargo is in the interests of the respective countries. However, this section is still rather inactive as the number of enterprises in the Baltic states exporting goods to the West is rather small in comparison with transit amounts flowing through the Baltic states. Comparing the insurance of export and import cargo, it becomes clear that local enterprises more often insure export goods rather than imports. Head of the carrier and sea risk insurance department at Balva insurnce, Yuri Yakunin, believes that in regard to transit cargo it is particularly important for insurance companies to convince their clients to obtain insurance in the Baltic states and not in the country of the receiver or the sender.

Edvins Ozolins, director of Kuehne&Nagel Latvia
The basis of reliability for our services - CMR insurance - we, as a forwarding firm, cooperate only with carriers which have a CMR policy. At the beginning of each year we request our carriers to send us copies of their CMR insurance. In addition we also offer our clients cargo insurance, particularly if the value of the cargo exceeds the insurance indemnity provided by CMR.
We have a stable partner in cargo insurance - the Latvian insurance company Ergo Grupa. Within the limits of this cooperation we offer our clients standard insurance policies, in case the cargo is particularly valuable or the standard policy does not provide against potential risks, it is also possible to be insured according to an individual program.
It is also possible to be insured by a German insurance company. At the beginning of our activities all cargo insurance was issued by this company as Latvia did not have international insurance companies. We have civil liability insured by this German company to cover losses which we may encounter in our work as a forwarding firm.

Insurance of internal transport of goods is not popular as the majority of entrepreneurs consider it to be an unnecessary expense even though the risk is considerable and the necessity of insurance is widely acknowledged. Right now there are hundreds of deliveries being made in the streets - from deliveries of newspapers to transport of office equipment. But how much of this cargo is insured? Of course, the pleasure is not at all cheap, and is the first to be crossed off the list, since nobody can be completely sure whether an accident will happen or not.

Liability or property?

Potential destruction or damage of cargo in the course of transportation can be covered by two types of insurance policies - the civil liability of a carrier regulated by the international convention CMR or cargo insurance.

Comparing the two, it becomes clear that the market prefers CMR insurance - the civil liability of a carrier is insured more often than the cargo itself. According to the director of the freight insurance department at BTA insurance, Dainis Sviksa, it is first of all connected with the market policy of insurance companies as clients of CMR are easier to ascertain whereas the situation with cargo insurance is different - cargo is transported by several companies - from manufacturers to trade enterprises. At the same time, carriers themselves need CMR insurance, as working with forwarding firms and foreign companies they encounter the necessity to have a CMR insurance policy.

Another factor supporting insurance of carriers with CMR is the so-called insurance culture, which is much higher with carriers than cargo senders. Having been in the market for 4-5 years, carriers start thinking that it is more profitable to be insured against accidents. It becomes particularly important when heavy-vehicles are acquired on hire-purchase or credit, which demands a strict installment plan. And in the event of an accident there will be not only a hole in the budget but the vehicle on hire-purchase will have to be returned. Therefore it is easier to plan insurance in the budget than to cover other expenses later.

Juris Gulbis, board chairman at the Latvijas Balzams distillery
Latvijas Balzams uses full blanket insurance, which insures against all possible entrepreneurial risks. Regular cargo insurance is only one aspect of the blanket insurance program and is used in absolutely all cases of cargo transport - receiving and sending products or raw materials. All cargo is insured, both those for Latvia and those for export countries as the company is not willing to expose its cargo to additional risk.

In addition, carrier insurance CMR is cheaper than cargo insurance, which also often influences cargo owners when choosing carriers. However, cargo insurance CMR cannot be replaced by civil liability CMR. Yuri Yakunin from Balva insurance explained to the BC that the principal difference between these two insurance programs is the fact that in one case it is the insurance of property, and in the other case - liability.

In case of an accident these differences have impact also on cargo owners. For example, in Europe, where there is substantial experience in transport of goods and insurance CMR, investigation and court proceedings connected with insurance CMR often last for decades. In case of civil liability first of all the guilt of the carrier is determined, then the guilt of those involved in the accident, but it all takes time.

Property insurance, on the other hand, is a less complex procedure. And the investigation of an accident is much simpler. The owner has insured the cargo and it does not matter who is responsible for the accident. The client receives the insurance claim but the insurance company investigates the potential guilty party in the accident. In such a case the procedure of the insurance claim is clearly provided by the insurance contract and usually lasts less than 2 months.

Break the bank?

Pavel Grosev, board chairman of Latvijas Auto international carriers assocaiation
In normal economic conditions experienced carriers use blanket insurance, which includes liability of the carrier regulated by the CMR convention, the KASKO motor insurance, as well as civil liability against losses inflicted on a third party (green cards). This is also generally practiced by the members of our association.
However, in spite of such sound practice, some carriers do not bother about insurance believing that nothing bad can happen to them. Cargo owners should keep in mind that entrusting such carriers with their cargo they bear just as much responsibility. Clients often pay attention to the cheapness of transport forgetting about quality and safety of transport. Losses are usually suffered by companies transporting simple cargo - timber, peat, furniture - as a result owners do not have enough money to cover losses inflicted by carriers which do not have insurance either.

Having carefully considered insurance possibilities and risks, a cargo owner has many options. First, to buy a blanket insurance policy and insure the cargo against all possible risks or, just the contrary, an insurance policy that provides only against specific types of risks which have the most potential. Mareks Leimanis, an expert of the union of insurance brokers Tris A Brokers, explains that two approaches exist in the world's insurance practice. ICC(A) (Institute Cargo Clauses A - All Risks) is a method developed by the London Institute according to which the cargo owner buys insurance against all kinds of risks, except global military activities, terrorism and negligence of the cargo owner. The insurance company covers all other expenses connected with the damage or destruction of cargo. Of course, all exceptions are provided by contract.

The ICC (C) method is when the cargo owner is insured only against the risk which has the most potential with the particular cargo. ICC (C) insurance policy considers all kinds of risks separately, first of all natural disaster, theft and robbery and other risks depending on the route of the cargo and other factors.

As to risks themselves, they also involve differences as one kind of risk is more common in one country while other kinds of risk - in other countries, and there are also risks which do not depend on geography, such as natural disasters. For example, in Eastern Europe cargo is most often insured against theft and robbery. But also here there are differences between different countries. If, for example, a cargo is transported only through Latvia the risk is of one kind, but if it is transported through a potentially more dangerous country such as Lithuania or Poland the rates of insurance liabilities and restrictions are higher. This applies particularly to transport by road. Such rules are not relevant for transport by rail, but transport of goods by air and sea is not a common occurrence in this country. Clearly, insuring the movement of goods internally is much cheaper.

Reserves in the East

In order to evaluate the present situation of the insurance market and development trends it has to be divided into sections according to different cargo types - internal, import-export and transit. At the moment each of these sections differs in regard to insurance and, of course, the prospects of further development also differ.

As mentioned above, internal cargo transportation is rarely insured. But the main reason for growth in this section is, of course, general economic growth. This is logical since the risk to which cargo is exposed in this country is rather small and expenses for insurance are not the main concern of entrepreneurs.

The development of import and export insurance, on the other hand, depends on the development of production. For example, many production giants are planning to open their branches in Estonia. For insurance companies this means that new enterprises and their products will have to be insured. In addition, if the law demands insurance of all national enterprises, it will also lead to further growth.

The situation with insurance of transit cargo is also favorable for Baltic insurance companies irrespective of global practice to have cargo insured by the sender or the receiver in their respective countries. But in this situation we can speak only of cargo transported from Russia, as cargo transported to Russia is usually already insured by insurance companies in Europe or America.

Entrepreneurs in Russia show less concern for their cargo than their colleagues in the Baltic states. Managers in Russia consider insurance a trick - you pay money for something unknown, then wait if this something happens, and whether your losses are actually covered, and what if this something doesn't happen at all? Yuri Yakunin admits that the company he represents has clients from Russia that prefer their cargo to be insured in Latvian insurance companies. And one of the main reasons is the close cooperation with insurance companies in Russia which can help in case of an accident. Such links must exist since Baltic entrepreneurs are willing to work with Russian transit. There must be a mechanism for  cooperation precise as clockwork. Yakunin adds that one should never rely on chance - we'll think of something if something happens.

As for Russia, an important role there is played by legislation, which has recently become unfavorable for cargo insurance. Thus it is more convenient for clients to be insured abroad, particularly in Baltic insurance companies and not in Russia. Of course, Russian cargo can be also insured in the West but that is even more expensive.


Cargo insurance - gross subscribed premiums by insurance companies in the Baltic states, %

Source: EPI-LETA

Cargo insurance in the Baltic states - gross subscribed premiums, mln USD

















Source: EPI-LETA

Cargo insurance in the Baltic states - paid insurance claims, mln USD
















Source: EPI-LETA

Baltic state insurance market in 2001, mln USD

Gross subscribed premiums

Latvia               144.945
Lithuania           87.636
Estonia             80.838

Paid insurance claims

Latvia               55.001
Lithuania           33.333
Estonia             39.034

Source: EPI-LETA