Domestic Insurers Targeting Low-Risk Logistics Market
Source: Editorial Staff
The Non-life Insurance Association has proposed that the Ministry of Finance issue rules and regulations that will prompt traders to apply ‘Incoterms’ (including insurance cover) in their import/export contracts.
Insurance covers are directly related to logistics businesses because they cover risks that may arise throughout the logistics process, starting from shipment consolidation through to transportation, storage and delivery of goods to domestic/ international final destinations.
As international trade and logistics businesses have grown rapidly, non-life insurance has drawn tremendous interest from local businesses, with the result that premiums on insurance policies covering international shipments, domestic cargo, fire/ natural disaster, inventory holdings as well as the liabilities of transport service providers, have increased to Baht 4 billion in 2007.
And yet, several producers and logistics service providers still prefer to use international insurance companies despite higher premium costs, delays in securing compensation for damages, as well as failure to enforce claims and court judgments on compensation payment by non-registered and non-resident insurance companies.
Most Thai importers/exporters also sign trade contracts which do not include insurance, namely, Cost and Freight (C&F) or Free on Board (FOB), leaving the task of obtaining insurance cover to their foreign trade partners, thereby foregoing value-added opportunities.
Arnop Porndhiti, Chairman of Marine and Transportation Insurance Sub-committee, President & CEO, MSIG Insurance (Thailand) Co., Ltd., said public-private sector cooperation is necessary to develop the insurance system in tandem with national logistics strategy. Local insurers have already installed IT systems to upgrade customer services, cut costs and simplify procedures while charging reasonable premiums. At the same time, improved logistics management by producers and service providers has also reduced transportation risks, which will in turn help to lower insurance premiums.
Aggressive promotion of logistics insurance
Apart from disseminating information on the benefit of international cargo and transportation insurance and encouraging Thai traders to use trade terms which include insurance, the 72-member Association of Non-life Insurance Companies has proposed that the Ministry of Finance and the Board of Investment issue rules and regulations to promote local insurance companies while raising income tax deduction for insurance premiums to 200%. Public sector organizations will also be required to use local insurance companies while an insurance curriculum will be added to the Compulsory Education Curriculum.
To make sure that local logistics service providers fully understand and are capable of selecting the appropriate type of insurance policy that suits their specific Risk Management profile, the Association of Non-life Insurance Companies has prepared and distributed information on 4 categories of logistics insurance, namely, (1) Freight Transportation and Forwarding, (2) Warehousing/Inventory Management and Packaging, and (3) Non-Asset Based Logistics Services, and (4) Information and Communication Technology/ Consulting.
This endeavor aims to empower logistics service providers to secure insurance coverage either in the form of Carrier’s Liability Insurance, Multi-modal Transport Operators’ (MTO) Liability Insurance Policy, Property Insurance, or Motor Insurance. Some policies are mixed while others are comprehensive packages that insurance companies have concluded with individual logistics service providers or any group(s) thereof.
On-going efforts to encourage importers/exporters and logistics service providers to be more pro-active in the area of non-life insurance and to make greater use of local insurance companies is a big step forward that will help to enhance Thailand’s competitiveness in the global marketplace.