What it means
Cargo insurance is sold in tiers. At the narrow end sit named perils policies, which pay only for the specific events listed, such as fire, sinking or collision.
Against all risks sits at the wide end and reverses the logic: everything physical is covered unless the policy explicitly says otherwise, which shifts the burden of proof towards the insurer. That reversal is the commercial value of the cover.
Under a named perils policy the cargo owner must prove the loss was caused by a listed event, which can be impossible when a sealed container arrives with damaged contents and no witnesses. Under an against all risks policy the owner need only show the goods left in good order and arrived damaged.
The exclusions are consistent across most markets and worth knowing. They typically cover ordinary wear and tear, inherent vice (a defect in the goods themselves, such as fruit that ripens too fast), insufficient packing, delay, deliberate acts by the insured, and war and strikes, with the last two usually available as separately priced extensions.
Pricing works on a rate applied to the insured value, which is conventionally the invoice cost plus freight plus a 10% mark-up representing lost profit and incidental expenses. Rates vary by commodity, route, packing method and claims history, and a shipper with a clean record on a straightforward route can pay a small fraction of what a first-time exporter of fragile goods pays.
One persistent misunderstanding is worth flagging: against all risks is a marine cargo term and does not extend to financial loss. If a shipment arrives intact but the buyer refuses to pay, or the market price has collapsed, no cargo policy responds, because the cover attaches to physical loss and damage only.
In practice
Real-world examples.
Example
An electronics importer moves phones and tablets from Asia in sealed containers. Because opened containers routinely reveal pilfered cartons with no evidence of when the theft occurred, the importer insists on against all risks cover, since a named perils policy would leave it unable to prove the cause.
Example
A specialist art logistics firm arranges cover for a touring exhibition. The against all risks policy responds to handling damage, but the underwriter adds an exclusion for existing craquelure and requires condition reports at each venue, which shows how exclusions are negotiated rather than fixed.
Example
A machinery exporter loses a claim for corroded castings when the surveyor finds the protective coating was applied incorrectly before shipment. The loss falls under the inherent vice and insufficient packing exclusions, so the broad wording does not help, and the exporter changes its packing specification for future consignments.
Formula
Calculation
Insured value = (Invoice cost + Freight) x 110%
Premium = Insured value x Premium rate
Worked example: an exporter ships machinery with an invoice value of $500,000 and pays $30,000 of freight. The broker quotes an against all risks rate of 0.45%.
Insured value: ($500,000 + $30,000) x 1.10 = $530,000 x 1.10 = $583,000.
Premium: $583,000 x 0.45% = $2,623.50.
Now suppose seawater enters the container in heavy weather and a surveyor assesses that 40% of the shipment is a total loss.
Claim value: $583,000 x 40% = $233,200.
The policy carries a $5,000 deductible, so the payout is $233,200 - $5,000 = $228,200.
The exporter paid $2,623.50 for the year's cover on that shipment and recovered $228,200, which is the arithmetic that makes cargo insurance an easy decision on high-value consignments.Case study
Seen in the real world.
Larkspur Ceramics is an invented tableware exporter used here as an illustrative example. It shipped a consignment with an invoice value of $345,000 plus $30,000 of freight, so the insured value under the customary formula was ($345,000 + $30,000) x 1.10 = $412,500, covered against all risks with a $2,500 deductible.
A container was dropped during transhipment and a surveyor assessed 35% of the load as unsaleable, giving a claim of $412,500 x 35% = $144,375 and an expected payout of $144,375 - $2,500 = $141,875. The insurer initially declined, arguing that the internal packing was insufficient and that the exclusion therefore applied.
In this fictional case the outcome turned on documentation. Larkspur produced its packing specification, photographs taken at loading and a third-party inspection certificate, all of which showed the packing met the agreed standard, and the claim was paid in full. The lesson the illustrative company took away was that the breadth of an against all risks policy is only as good as the evidence you can produce when an exclusion is raised.
Watch out
Common mistakes.
- Reading the name literally and assuming everything is covered, when war, strikes, delay, inherent vice and insufficient packing are standard exclusions.
- Insuring only the invoice value, which leaves the shipper out of pocket on freight, duty and lost margin when a total loss occurs.
- Assuming the carrier will cover a loss anyway, when carrier liability is typically capped at a low amount per kilogram and is nowhere near the value of the goods.
Questions
People also ask.
Does against all risks cover war and terrorism?
Not as standard, though war and strikes clauses can usually be added for an additional premium on most routes.
Who should buy the cover, buyer or seller?
It depends on the agreed Incoterms, which determine at what point risk passes, so the party bearing risk during transit should hold the policy.
Why is the insured value set at 110% of cost and freight?
The extra 10% is a long-standing market convention covering lost profit and the incidental costs of dealing with a claim.
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