Mysteries of insurance

The true worth of something is only realised after it’s lost — this adage often rings true in the ears of logistics firms after they are robbed of a consignment en route , and insurers pick up the magnifying lens to interpret the fine-print. After all, the value of cargo is many times more than what a transport company makes. Deriving insurance rates for cargo in transit is “as much a science as an art”, DP Agarwal, vice-chairman and managing director, Transport Corporation of India (TCI), says in a recent report.

Large logistics firms are clear about the rules of the game. While goods are insured by their owners -- consignor and consignee — transporters insure the vehicle and drivers. “Somebody is sending it, somebody is receiving it. We are not the owner of the goods, we are an intermediate. We take vehicle insurance and protective insurance for driver, but not for the goods,” says R Shankar, TVS Logistics. Shankar is lucky. His company has not faced a single theft incident in five years.

But most transporters are neither as large nor lucky. Over 80 per cent of transport firms have a truck fleet size of five or less. With multiple stakeholders in the supply chain of this rather unorganised sector, it often leads to blame-games when goods go missing in transit. Complex insurance contracts further leave transporters in the lurch in the event of high claims.

Clauses covering loss of cargo in the contract do not entirely insulate logistics firms. NECC, for instance, shows how insurance companies pass the cost of lost cargo back to the transporters. “In the contracts of some FMCG companies, if the damage exceeds a sum they claim it from the insurance company which, in turn, recovers a portion from us,” says NECC’s Director Utkarsh Jain.

Besides, many insurance firms are reluctant to extend their services to e-commerce firms — particularly those which move damage-prone electronics items. This is not helping at a time when e-commerce sales are booming. Costly items are now being shipped directly to consumers’ doorsteps and they don’t blink before returning goods that fall short of expectations.

However, there is another open secret industry veterans shy away from discussing. . “There are instances of crooked transporters running away with valuable cargo to make a quick buck,” says an insurer. Human greed is more ancient than the history of transport itself.

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