Reinsurance, Co-insurance, and Underwriting Considerations for Cargo
Scope
This domain tests how cargo risks are shared and rated: co-insurance between insurers, reinsurance behind the policy, and the underwriting factors that shape terms.
Co-insurance and reinsurance
- Co-insurance means two or more insurers subscribe to the same risk, each for a stated percentage. Liability is several, not joint, unless the policy says otherwise. The lead insurer usually sets terms and handles claims.
- Reinsurance is the insurer's own cover. It does not create privity with the insured; the insured claims against the original insurer only.
- Proportional reinsurance includes quota share and surplus; non-proportional includes excess of loss and stop loss.
- Facultative reinsurance is arranged risk by risk; treaty reinsurance is automatic under agreed terms.
Underwriting factors
Cargo description and packaging; route, transshipment and duration; mode and carrier; container type and reefer settings; storage and inland transit; hazardous or temperature-sensitive goods; deck stowage; sanctions and war/strikes exposure; sum insured, deductible, claims history and ICC(A/B/C) choice.
Worked example
A ₹1 crore consignment is co-insured 60:40. A covered loss of ₹20,00,000 occurs. Insurer A pays ₹12,00,000 and Insurer B pays ₹8,00,000, subject to the policy deductible. If A has a quota-share reinsurance treaty, its reinsurer reimburses part of A's share, but the insured still looks only to A and B. If B becomes insolvent, A is not automatically liable for B's share absent a clause.
Traps
Do not tell an insured to claim the full amount from each co-insurer. Do not treat reinsurance as direct cover. Do not rate cargo on value alone while ignoring packing, route and transit duration.