How can you ensure your insurance policies comply with International Commercial Terms?

1 Know the different Incoterms

There are 11 Incoterms that are divided into two categories: rules for any mode of transport and rules for sea and inland waterway transport. Each Incoterm specifies the point at which the risk of loss or damage transfers from the seller to the buyer, and who is responsible for arranging and paying for the insurance. For example, under EXW (Ex Works), the seller has the least obligation and the buyer bears all the risks and costs from the seller's premises. Under CIP (Carriage and Insurance Paid To), the seller pays for the carriage and the minimum insurance coverage until the destination, but the risk transfers to the buyer once the goods are handed over to the carrier.

2 Choose the right Incoterm for your transaction

Depending on your role, the type of goods, the destination, and the mode of transport, you should choose the most suitable Incoterm for your transaction. You should also consider the customs clearance, the delivery time, and the payment terms. For example, if you are a seller and you want to have more control over the shipment and the insurance, you might prefer FOB (Free On Board) or CIF (Cost, Insurance and Freight). If you are a buyer and you want to reduce your liability and costs, you might opt for DAP (Delivered At Place) or DDP (Delivered Duty Paid).

3 Review your insurance policy carefully

Before you sign a contract with an Incoterm, you should review your insurance policy carefully and make sure it covers the risks and liabilities that you are assuming. You should also check the exclusions, limitations, deductibles, and claims procedures. You should be aware that some Incoterms require a minimum insurance coverage, such as CIP and CIF, which only cover the Institute Cargo Clauses (C), the lowest level of protection. You might want to upgrade your insurance policy to a higher level, such as Institute Cargo Clauses (A) or (B), or add additional clauses to cover specific risks, such as war, strikes, or theft.

4 Communicate with your trading partner and your insurer

To avoid misunderstandings and disputes, you should communicate with your trading partner and your insurer clearly and frequently. You should confirm the Incoterm, the insurance policy, the invoice, and the shipping documents before the shipment. You should also inform your trading partner and your insurer of any changes or delays in the shipment. In case of damage or loss, you should notify your trading partner and your insurer as soon as possible and provide them with the necessary evidence and documentation to support your claim.

5 Follow the best practices and regulations

Finally, you should follow the best practices and regulations for import/export operations and insurance. You should use the latest version of Incoterms, which is Incoterms 2020, and specify it in your contract and invoice. You should also comply with the local laws and customs of the origin and destination countries, and obtain the required permits and certificates. You should also pack, label, and handle your goods properly and securely, and use reliable carriers and intermediaries. By following these steps, you can ensure your insurance policies comply with Incoterms and safeguard your import/export operations.