Risky times

zoom

In today's challenging economic climate, logistic companies really need to think twice before cutting their insurance budgets.

Providing coverage for the logistics industry has never been an easy task for insurance providers in the Middle East. On the one hand, warehousing and transportation companies are still educating themselves about the importance of insuring their operations; while on the other hand, insurance providers are catching up with the complexities of the sector.

Then, with both parties on the brink of common understanding, the global recession leads to cost-cutting initiatives and the relationship is brought back to square one. Ironically though, at a time of economic slowdown, the need for adequate liability insurance has never been greater.

"In many cases, services are provided by logistics operators without full consideration of the contractual obligations," points out Ian Lush, marketing director at TT Club, a global provider of insurance policies for warehousing and transportation.

"According to such contracts, it's the logistics operator that assumes the risk, which means they're fully-liable for late deliveries, for example, which could result in a non-performance penalty."

For this reason, liability insurance has particular relevance to the logistics industry and should form a major component in the risk management strategies of companies throughout the Middle East. "It's sensible for operators to carefully review their contracts before agreeing on what might be onerous terms, for example, full value liability," adds Lush.

"Whilst there is an increasing awareness of onerous liabilities, it remains good practice to consult professional legal advice when reviewing contracts for the provision of logistics services."

Fortunately, there are many legal advisers in the Middle East to share their expertise with the logistics industry. Law-firm Holman Fenwick Willan, for example, has a dedicated logistics team to advise its clients on managing issues that may arise from their operations. According to Siân Knight, a lawyer with the Dubai office, liability insurance provides a risk management tool in the broadest sense.

"Without insurance coverage, the operator is exposed to full financial risk and becomes reliant on limitations in either the contract or local law to reduce their liability," she explains. "A regular review of existing insurance is also imperative because a gap in coverage is not normally discovered until a claim is declined by the insurer."

Knight believes that increased levels of insurance coverage are essential for the development of a safe and reliable logistics industry, and that there has never been a better time to focus on this. "It's mandatory to purchase third-party liability insurance in countries such as the UK, which puts this into context," she says. Whilst the Middle East is lagging behind when it comes to similar mandatory schemes, some countries have started to move in the right direction.

For example, a Memorandum of Understanding (MoU) was signed by the National Association of Freight Logistics (NAFL) and the national government last year to establish mandatory liability insurance for Dubai's thriving logistics industry. Further working in the favour of companies wanting to upgrade their risk management, Knight points to the increasing number of insurance providers that have started to offer specialist solutions for the logistics sector.

Hemant Barke, executive committee member of the Supply Chain & Logistics Group (SCLG) and CEO of Dubai-based Prudence Insurance Brokers, agrees. "Our region has well-established local insurers in addition to internationally-renowned providers from Europe, USA and Asia," he states. "Combined, they offer state-of-art insurance solutions for the entire gamut of logistics operations."

Understanding the perspectives of both the logistics and insurance industries, Barke is confident that logistics operators now have a good blend of global insurance protection with local coverage for their assets, income and liability exposures. "There is a wealth of insurance expertise available," he says. "With operations evolving in this region, the scope to enhance awareness and penetration of insurance is really strong."

Last year saw one of the largest insurers in the Middle East, AXA Insurance Gulf, launch its new product ‘Logistics Secure', a policy that specifically deals with the requirements of freight forwarders in the GCC. The solution aims to be ‘flexible and versatile' in offering coverage, ranging from simple haulage risks to more complicated logistics operations.

"Logistics Secure is a unique product and the only one of its kind available in the market. We have received a very heartening response to date," says Toby Sizeland, chief officer of corporate solutions marine and large risks at AXA Insurance Gulf. For a concerned logistics company, having a product developed with its specific needs in mind can only be a blessing. Like Knight, Sizeland's advice to logistics companies is ensuring their insurance requirements are fully covered without the gaps that could expose them to losses.

"A logistics company needs to be aware of their potential liability under contract and also within the law of the areas in which they operate," he says. "The uncertainty of the judicial processes in the region is another factor that the company should consider, since they might be found to be negligent even in instances that might release them from liability in other jurisdictions."

The timeliness of logistics insurance policies such as ‘Logistics Secure' is ambivalent. Just as the logistics industry has been coming to grips with the necessity of insurance, economic slowdown means that companies are introducing cost-cutting measures to ensure a viable future. In Sizeland's opinion, this could swing two ways.

Print | Email | Discuss this article

| Share |

READERS' COMMENTS

Click here to post a comment

Add your Comment All posts are sent to the administrator for review and are published only after approval. ArabianBusiness.com reserves the right to remove any comment at any time for any reason. Please keep your responses appropriate and on topic. Arabian Business would like to point out that only comments relevant to the story will be published. Any containing personal insults or inappropriate language will not be approved.
Name *
Remember me on this computer
Email *	(Your email address will not be published)
City
Country
Subject *
Comment *
Notify me of further comments
Enter the words above *
Please click post only once - your comment will not be published immediately.

MORE FROM ARABIANBUSINESS.COM