Risky times

"On a positive note, it could encourage the freight forwarder to take insurance for their exposures and act in a prudent manner," he suggests. "Or it could work negatively and the freight forwarder could consider the expenditure on insurance an avoidable one that can be deferred until the economic situation improves." The latter choice could have very serious consequences.

"The benefits of having comprehensive coverage can far outweigh the costs, particularly as the nature of logistics means that companies can be open to litigation from their clients around the world," Sizeland emphasises. "This is especially important in today's uncertain scenario where a little foresight can save a business enterprise."

Sanjay Babur, chartered insurance broker and managing director for Cosmos Insurance Brokers, echoes this viewpoint. "In current market conditions, logistic providers must arrange liability cover as soon as possible," he advises. If anything, Babur believes commercial disputes will increase during the economic downturn, stating "history has shown us that cargo claims increase during a recession."

His views are supported by a recent study from Conning Research and Consulting, which predicts that general liability losses and expenses are expected to rise faster than premium increases in the next couple of years. There are also other factors to play. During tough financial times, there is a greater tendency towards what Babur refers to as ‘moral hazard', namely fraud or other white collar crimes. The outshoot of these increased risks means that logistics insurance is even more essential during economically-challenging times.

"In absence of adequate insurance, logistics operators could endanger their profitability or business, especially in the case of small and medium sized operators, who cannot absorb a large loss," says Babur. Even before the recession, these operators were lagging behind when it came to comprehensive insurance. If anything, with the current economic situation spelling out lower premiums and higher risks, there has never been a better opportunity for logistics companies to reconsider priorities and help to boost, rather than detract from, the importance of insurance.

As a new player in the regional market, Momentum Logistics, a subsidiary of international port management company Gulftainer, welcomes the insurance sector's efforts to ease logistics companies into risk management. "Established operators and insurers are aware of the nature of business and the inherent risks," highlights Matthew Derrick, general manager at Momentum Logistics.

"These days, there are so many different options to choose from, whatever your intentions and activities. It's just a question of finding the right insurer and working closely to tailor the coverage to your company's particular needs."

Whilst he accepts there may be a temptation to compromise on insurance during tough financial times, Derrick recognises the implications would be far more severe in the event of insufficient cover.

"In the logistics sector, as with any other, there are inherent risks in the nature of business and no matter how well we plan our activities and train our employees, the fact is that things can go wrong," he admits. "There are simply too many variables outside of anyone's control and to ignore that fact is naive and irresponsible. In the logistics industry in particular, not to have liability insurance is to make oneself a liability."

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