Only the owner of the goods can insure them, but they can appoint an agent to deal with this on their behalf. Any other party that might be a potential owner (because they are hoping to reach agreement on the purchase of the goods) may arrange insurance. However, at the time of an incident that might give rise to a claim, they must be able to establish a legal insurable interest.
In any sale of goods, the ownership will pass from the seller to the buyer. The contract or sale will state the responsibilities of each party.
It is important in any transaction that both the buyer and seller are fully aware of their responsibilities under the terms of sale in the contract. Specifically, one must know the point in transit at which the seller has fulfilled its obligation so that title (and, therefore, the risk of loss) has passed to the buyer. It is also crucial to understand which party is responsible for carriage from one point to another.
As a rule, one should always attempt to control the insurance, as well as placing the insurance locally. This means imports should be purchased on an FOB or C&F basis, and exports should be sold on a CIF basis.
Importers and exporters are often willing to leave the placement of insurance to their vendor/buyer. There are two reasons for this:
- It is not widely known that the North American market is viable and competitive
- They are unaware of the benefits when controlling the insurance
The benefits to the importer of buying FOB or to the exporter for selling CIF are as follows:
- They know the insurance is in place. If they have an open policy, every shipment they buy or make is insured
- They know the right kind of insurance is in place. Having received expert advice from their broker, they are covered from warehouse to warehouse. Often, an exporter is unprotected when selling "FOB vessel" from the exporter's place in, say, Omaha to the port in Seattle
- The importer, when buying CIF does not always know what insurance has been provided for them, and there may be shortcomings as to the amount and coverage. The shipper is required only to provide minimum coverages under a CIF contract, and the importer may be surprised to learn that their loss is not covered by the overseas policy. In some cases, even if the insurance is "All Risk," the meaning of this coverage can vary in some foreign countries
- They can control the premium cost. Insurance at the other end may be based on a loss experience that is not as good as theirs and, therefore, attracts higher rates. It may be charged for on an inflexible market tariff or a tariff imposed by law. In negotiating with a domestic underwriter, they have the advantage of their own loss experience and also volume of business
- The exporter knows their product best and is able to provide all the facts about the risk, giving the domestic underwriter an optimistic viewpoint of the risk
- They know that when they make arrangements for insurance, their interest is protected at all times. With the advice of their broker, the importer can be sure their interests are protected with the appropriate type and duration of coverage. The importer would not have to rely on their customer to protect their interest, only to find out too late that they are not adequately insured
- Some exporters may think that if they sell "ex-works" (i.e., the customer arranges insurance) that once the goods leave their premises, they can relax. This is not the case, as there is a real danger that the buyer will reject the goods for any number of reasons, and the exporter may find himself in possession of goods that are sitting in some unprotected place, at risk and totally uninsured
- Often the exporter has sold his goods on extended payment terms, meaning he is financially at risk while the goods are in transit. When people are financially at risk, they want the security that comes with knowing they have insurance protection arranged through their own broker
- They know the insurance is in their own currency, thus avoiding foreign currency problems, such as devaluation or inflation. Under some foreign exchange controls of other countries, dollars may not be available to them if the shipment is damaged before clearing customs
- An exporter is interested in the solvency of his customer (a potential repeat buyer). When the importer must pay dollars for his goods, the exporter wants to protect that purchasing power. Should there be a loss and the importer is only able to collect from the foreign insurance company in a frozen currency, then their continued trading may be impaired and the exporter's chances of making another sale is reduced