Increased Value Insurance – Cargo

Increased value insurance in marine cargo insurance, also known as duty and increased value (DIV) insurance, provides coverage for any increase in the value of cargo during the policy period. Unlike agreed value insurance, which fixes the insured value at the start of the policy, increased value insurance allows for adjustments to the coverage limit to reflect the changing value of the cargo. This is particularly important for goods with fluctuating market values or those subject to duties and taxes that can significantly impact their final value.

Here’s how it works

• Initial Value: The policy starts with an initial estimated value of the cargo, including the cost of the goods, freight, and insurance.
• Fluctuating Value: The coverage recognizes that the value of the cargo can change during transit due to market fluctuations, added costs like import duties and taxes, or even improvements made to the goods during the journey.
• Coverage Adjustment: The policy allows for adjustments to the coverage limit to reflect these changes in value. This ensures that the insured has adequate protection in case of a loss, even if the value of the cargo has increased.
• Claim Settlement: In the event of a covered loss, the insurance company will pay the increased value of the cargo, including duties and other charges, not just the original insured value.

Benefits

• Avoids Underinsurance: Protects against underinsurance by accounting for increases in the value of the cargo.
• Reflects True Value: Ensures that the coverage reflects the true value of the cargo at the time of loss, including any added costs or appreciation.
• Flexibility: Provides flexibility to adapt to changing market conditions and import costs.

How it Differs from Agreed Value

• Agreed Value: Fixes the value of the cargo at the start of the policy, regardless of any changes in value during transit.
• Increased Value: Allows for adjustments to the coverage limit to reflect the actual value of the cargo at the time of loss.

Example

A shipment of coffee beans is insured for $100,000 at the start of its journey. During transit, the market price of coffee beans increases significantly. If the shipment is damaged, increased value insurance would cover the higher market value of the beans, while an agreed value policy would only cover the original insured value of $100,000.

Increased value insurance in marine cargo insurance provides a valuable safeguard for importers and exporters, ensuring that their coverage keeps pace with the changing value of their goods and protecting them from potential financial losses due to market fluctuations or import costs.

Global Perspective

• Prevalence: Increased value insurance is offered in various forms in marine insurance markets worldwide. It’s particularly relevant for high-value goods, commodities with fluctuating market prices, and shipments subject to significant import duties and taxes.
• Terminology: While the term “increased value insurance” is widely used, it may also be referred to as “duty and increased value insurance” or “DIV insurance,” especially in Asian markets.
• Importance in International Trade: This type of coverage is crucial in facilitating international trade, as it protects businesses from financial losses due to changes in the value of goods during long transit times or unexpected increases in import costs.
• Customization: The specific terms and conditions of increased value insurance can be customized to meet the unique needs of different businesses and industries, providing flexibility in coverage and risk management.
• Risk Management Tool: It’s an essential risk management tool for importers, exporters, and traders involved in global commerce, helping them mitigate the financial impact of potential losses and ensuring business continuity.