According to the largest insurers involved in cargo and carrier insurance , the activity of their insurers in June-August (excluding the last two weeks) increased by almost 22%. This does not match even the most optimistic forecasts of analysts for 2020. And yet this situation takes place.
What is the reason for this? Experts explain the desire of participants in the delivery market to insure goods and their transportation by three reasons.
- Updating parks.
- A sharp increase in accounts receivable.
- Difficult working conditions associated with measures taken to prevent the spread of coronavirus.
New cars – new costs
The pandemic, whose first outbreak, albeit slowly, is fading away, has made its own adjustments to the work of all branches of business. Cargo transportation is no exception. The industry owes two completely new statuses to the coronavirus.
First, she is ranked among the worst affected by Covid-19. That is, he receives the entire package of indulgences from the state (which does not cancel the benefits of delivery insurance, but only increases it, but more on that below).
Secondly, given the role that transport companies played in providing business and the population with the necessary goods during the period of self-isolation, freight transportation has rightly become one of the most promising areas for investment. On the one hand, this is encouraging.
On the other hand, it imposes certain obligations on market participants related to guaranteeing the return on investments of investors. These obligations include the purchase of a new vehicle, insurance of transportation risks , and the modernization of the existing fleet.
The purchase of new machines and equipment of old ones with new equipment is a serious expense for a company, often very risky during a crisis (but necessary, given the requirements and expectations of the investor). It is not surprising that taking on the financial burden (the same loans for fleet renewal), more and more carriers prefer to insure against unforeseen expenses as a result of:
- accidents with damage to cargo;
- loss of delivered goods due to theft;
- the occurrence of the responsibility of the driver or freight forwarder of the transport company;
- theft or damage to the cars themselves, etc.
Old market challenges at a new level of risk
Accounts receivable, which may not be repaid for 3-6 months, is a normal phenomenon in the field of cargo transportation. But given the difficult economic circumstances and all the same renewal of the vehicle fleet (loans must be paid every month), a normal phenomenon becomes a source of increased risk.
This state of affairs, by the way, has created a new need for the segment. Following manufacturing and industrial enterprises, transport organizations are showing an increasingly explicit request for insurance against business risks in the event of:
- bankruptcy of the counterparty;
- non-payment of receivables.
This request, however, has so far been satisfied only by a few insurers (about 1% of the total number of insurance companies that work with insurance of transport companies). But if the trend becomes stable, a new insurance product may appear in the comprehensive cargo insurance contract.
In the meantime, carriers are limited to reducing risks through insurance of trucks and those goods that these vehicles carry. Thanks to protection against unplanned expenses, it is much easier to balance between lagged income items and recurring costs.
Prohibitions and restrictions
In the early days of massive worldwide isolation, trucking carriers became a privileged class of business. They were dear everywhere, even where the borders between states are closed to everyone.
But over time, these preferences were clarified. And now, for unhindered passage, transport workers must comply with a number of conditions. Insurance of road transportation (and in cases where the delivery agreement does not imply the mandatory conclusion of an insurance agreement, according to the rules of INCOTERMS) are among such conditions.
Moreover, this circumstance concerns not only international delivery, but also domestic. And here it is worth remembering again about the state support of the industry. It provided the last condition for the rapid growth of activity in cargo insurance for road transportation – it made it possible to free up some of the funds previously allocated for mandatory insurance premiums (and other fees) in order to direct them to voluntary types of insurance of real financial risks.
Favorable conditions for insurance
The insurers, for their part, also provided assistance to the policyholders:
- kept the prices for insurance policies (complex and individual) practically at the pre-crisis level;
- implemented a lot of box solutions for quick registration of insurance products;
- reduced the terms of agreeing the terms of cooperation.