Go Cargo Insurance News

Paul Marks, Managing Director of Aon Marine division, looks at the impact of new insurance regulation on freight forwarders and how they can benefit from a new web-based solution

When new insurance regulation was introduced this year, it looked like the historic relationship between forwarder and cargo owner was set to change. Almost overnight, freight forwarders who had not registered with the Financial Services Authority (FSA) were no longer authorised to provide cargo insurance direct to cargo owners, which was a key part of their service.

UK based freight forwarding companies had been helping cargo owners to protect their goods during transit by arranging cargo insurance through their insurance brokers and then selling on the cover to cargo owners. Cargo owners took this cover for granted as it formed part of the services they had traditionally received from their forwarder.

Then the Insurance Mediation Directive kicked in on 14 January 2005.  The directive, introduced by the European Commission and implemented in the UK by the FSA, is geared towards protecting the consumer who, in this case, is the cargo owner.  It aims to ensure that individuals or companies who carry out insurance mediation are registered on the basis of the following minimum requirements:

• Possession of appropriate knowledge and ability
• Being of good repute
• Possession of professional indemnity insurance or any other comparable guarantee against liability arising out of professional negligence
• Having sufficient financial capacity, in the case of insurance intermediaries who handle customers' money.

This new regulation created a double-whammy:  Cargo owners suddenly had to find alternative arrangements for their cargo cover or face their goods being uninsured; forwarders had to face the threat to their bottom line through loss of commission, a potential loss of business and damage to a historical relationship and service.

It was decision time for forwarders, who had to choose from the following options:

1. Register with the Financial Services Authority
2. Stop selling insurance
3. Extend their transit liability (meaning cargo owners would be compensated but only if damage to goods was the fault of the forwarder or their sub-contractor)
4. Obtain Introducer/ Appointed Representative status on behalf of broker, where the forwarder would still be subject to regulation and penalties for non-compliance

Only the largest forwarders were able to bear the financial and administrative cost of registration with the FSA.   With less than 40 forwarders becoming authorised with the FSA, this left over 90% of forwarders, who had previously sold insurance, needing to find an alternative route to supplement their lost revenues.

Aon Transportation and Logistics, a division within the global insurance broker and risk management consultant, recognised the threat to historic trading relationships and drew up a solution that would bridge the gap between forwarder and cargo owner:  A new website, GoCargoInsurance.com, was designed to enable cargo owners to obtain instant cost-effective insurance for their cargo.

Bearing in mind that cargo owners are relatively inexperienced in obtaining cargo insurance, as this function was previously fulfilled by their forwarder, the website is geared towards being user-friendly. Visitors can access GoCargoInsurance.com 24 hours a day and will be guided by a simple-to-use rating engine.  The website provides cargo owners with instant quotations and insurance certificates online, enabling them to obtain confirmation that their goods are fully insured, with immediate effect.

So far, GoCargoInsurance.com has provided support for SMEs - particularly in markets such as textiles, wine and machinery - where Aon’s industry knowledge indicated heavy import/export traffic and have accounted for a significant percentage of policies purchased.

Furthermore, the website invites forwarders to register, with the opportunity to receive a commission and strengthen their customer relationships when they direct cargo owners online to purchase a policy for their cargo.

This internet-based solution enables forwarders to maintain their revenues without the responsibilities of compliance, administration and claims handling - which are provided by a dedicated team of insurance experts.  Drakefield Insurance Services is responsible for operating the FSA-compliant site and policies are underwritten by a leading cargo insurer, Royal & SunAlliance.

At the start of the year, a historic trading relationship looked like it was on the line, but through this new website, business between forwarder and cargo owner can continue to go from strength to strength.