Insuring household goods in transit

The world is becoming a global village. People travel across the world not only for pleasure but in the course of their employment on projects/assignments or change of jobs. The movement may be from one city to another within the same country or across countries and continents. Often these movements are with their entire families and hence the need to shift residence from one place to another. These may be happy times for the persons concerned but brings in its wake challenges for the marine cargo underwriter.

There is increasing demand for insuring household goods in transit from one place to another.These may be relatively short transits by road from one city to another within the same country or multi-transits involving container-loads of household goods running into hundreds of thousands of dollars moving by road then by sea/air with intentional storage at both ends…….. and the cargo underwriter’s cup of woe is full.

So why do cargo underwriters not look at household goods as a preferred risk?

• Household goods by their very nature are prone to damages during transit, made as they are for being used in the same place only for considerable lengths of time. They are not designed for frequent movements. E.g. Wooden or steel furniture, televisions, music systems, refrigerators, air-conditioners, washing-machines, mirrors, glass-topped items, bedding, mattresses, carpets,chandeliers and items of personal use like dresses, suits, shoes, expensive crockery sets,etc.
• Apart from the general nature of household items, two factors heighten the risk — 1) Many of these items are fragile in nature and easily prone to breakage during transportation or handling 2) Typically each of these items had been used by the owner for varying lengths of time. An used item can never be equated to a new one and any used/second-hand item proposed for transit is always looked at carefully by the underwriters.
• As the subject-matter is ‘used’, its condition immediately prior to the transit can never be accurately ascertained. At best, a physical examination can be carried out by an independent agency but then this does not confirm that each of the items was in perfect working condition before commencement of transit.
• However well they may be packed for transit, same cannot be on par with that of the original manufacturer’s packing. 
• The biggest  problem is that of ‘valuation’. Usually the proposer does not have the record of purchases of all his household items. Even if they are available, there is the difficulty to arrive at their current market values. The current values should be at the place of departure immediately before the transit. Proposers may seek to insure on New Replacement value basis and demand ‘New for Old’. Leave alone valuation for which the proposer is not an expert, even a Packing list showing complete list of items to be insured is hard to come by.
• Last but not the least is the fact that the proposer has an emotional value attached to household goods. No doubt, emotional value is not insurable, only financial value is — but the problem is that if a household goods claim is declined or offer of settlement is below the insured’s expectation, all hell breaks lose. Usually standalone requests for covering household goods in transit are politely declined by most insurers. However, if the request is from a large corporate house who has multifarious insurance policies with the insurer, he cannot deny coverage. In a claim situation, the more senior the claimant in his organisation, the more complex the claim settlement becomes for the claims-handler as also for the underwriter.

As stated earlier, there is a rising need for covering household goods during transit. Requests also come from specialized packers and movers/relocation  agencies whose business itself is to dismantle, pack, transport, store (if necessary), deliver and install at the place of delivery. Insurers cannot afford to ignore this genuine insurance requirement. Needless to say, they have to understand the requirements completely, put in checks & balances and price the risk appropriately.

When the request for covering household goods comes from a professional relocation company, an underwriter can derive comfort from the fact that some of the apprehensions relating to this class of goods will be taken care of. These relocation companies put in place certain pre-conditions with their clients before accepting a contract. They visit the client’s residence, have a physical look at all the items, test some of the electronic/electrical ones to ensure that they are in working condition and only then give a quote for their relocation service. Secondly, there is an insistence that a detailed Packing list is made available before the actual packing begins. If the client has issues with the values of certain belongings of his, these companies make use of licensed valuers as well. Thirdly, the relocation company insists that packing of each item is done by their own staff and if it pre-packed, they do not take responsibility for any loss/damage for the said item. They have a team of packers as also the necessary packing material to ensure that the packing is as good as that for a new purchase. Dismantling of items is also carried out by these specialised agencies only.

Question may arise as to whether a marine cargo policy can be issued to relocation companies as they do not have an insurable interest in the cargo except for the fee they charge for their services ( which can be considerable). Yes, provided they have a contract with their client to arrange transit insurance on their behalf. A master policy can be issued in the name of the “Relocation company for the benefit of clients for whom they are contractually obliged to arrange transit insurance”. In case of a claim, the amount will go to the owner of the goods.

The presence of a relocation agency/packer & mover does improve the risk as far as household goods go, but again an underwriter will need to look at the track record, reputation, scale & size of the relocation agency before accepting a risk. A few of the other underwriting precautions, an underwriter has to take are listed below:

1. Exclude from the scope of cover valuables like jewelry, documents, certificates,currency notes, works of art, sculptures & antiques. If there is a genuine need to cover works of art,sculptures or antiques, they can be covered with a sub-limit and more importantly after a valuation by an approved valuer.
2. The usual exclusions like moth, mildew, vermin, electrical & mechanical breakdowns, heating, sweating & out-of-tune or loose strings in musical instruments should be added.There could be specific requirements that some of these exclusions need to be deleted or amended. Why? Often there will be intentional storage requirements and though some of the above can be discounted during transits, prolonged storage can lead to losses of the nature cited above. Storage can be at the loading country itself. After vacating his residence, the owner of the goods may move abroad but there could be a waiting period during which he he finds a suitable accommodation in the other country to which these goods are intended to be moved. Until such time, the relocation agency is asked to hold them under storage. The storage could be at the destination country too. Mildew, vermin,etc need not necessarily be pre-existing in nature. Hence, covers against these types of losses can be sub-limited or granted with a higher deductible or both.
3. Usually Pair & Set clause forms part of such policies. There is often a demand to delete this clause. the underwriter has to take a pragmatic call.While the intent behind this clause is to pay for the loss or damage to an item which is usually in a pair or set without looking into the reduction in value of the pair/set as a whole, it may not always. be practicable.For instance, if out of a pair of expensive shoes, one is lost/damaged and Pair & Set clause invoked, it will be ridiculous. A single shoe on its own can never be used nor does it have any high intrinsic value which it can fetch in the market.
4. The underwriter must be clear in his thoughts that Incoterms will not apply in case of movement of household goods by relocation agencies. The cover will be ‘door to door’ including intentional storage where required at any intermediate/final destination, dismantling & installing.
5. It must also be remembered that the cost of repairs in some countries may be prohibitively expensive and in some others, not repairable at all. A constant comparison to practices and repair rates in India could be led one into a blind alley only.
6. As in the case of repairs, loss assessment/survey fees too tend to be very high in certain countries. The underwriter will do well to put in place a robust verification process without the need for an external loss assessor for losses upto a pre-decided amount. There can be considerable savings in survey fees.

A very interesting cargo, which underwriters cannot afford to ignore. Why? Burgeoning volumes and very good rates. Yes there are losses and the scope for super-profits is not there. Yet, with proper selection of risks, prudent underwriting safeguards and a robust claim-settlement process, insurers can still be in the black.