Ask perishable shippers what they think of cargo insurance, and they’ll often call it “a necessary evil.” 

Insurance today is based on perceived risk, and insuring freight can be tricky because of the unknowns involved, many outside the shipper’s control. Cold chain shipments are a particular challenge due to the relatively high value of the cargo and the special monitoring and handling requirements, both in storage and transit.

Understanding the conditions of perishable goods is critical. When perishable cargo is compromised by out-of-spec temperature or humidity variations, it's a race against time. Knowing the extent and severity of the variations makes it possible to take corrective steps to salvage the product and prevent an insurance claim that can lead to higher premiums. Not knowing adds enormous risk.

COVID-19 and recent supply chain disruptions amplified risks: Cargo was stranded aboard ships at anchor and in congested terminals; cargo flights were grounded, and lane imbalances left empty containers collecting in the wrong locations far from return loads. The Agriculture Transportation Coalition, an exporter trade group, reported 20% of confirmed U.S. agricultural export sales were lost to carrier capacity and pricing issues in 2021. Only about a third of completed shipments arrived on time, compromising shelf life and quality.

Resilience and the ability to respond and adjust quickly is a top priority for all supply chains, but particularly for the cold chain given the potential losses at stake. Resilience depends on supply chain visibility.

A Better Way

Until recently, insurers haven’t had the expertise or capability to assess clients’ actual cargo risk, let alone help them mitigate it. Insurers without adequate supply chain data rely on an opaque mix of shipment volume and general characteristics, company claims history and industry actuarial risk values to construct premiums. Perceived risk and coverage levels are often inflated to cover contingencies. In the event of a claim, insurers retain a surveyor to investigate and mitigate exposure, which could cost clients as much as $1,500 a day, all adding to processing time and undercutting the value of coverage.

Advances in sensor, wireless and cloud-based platform technology are now bringing end-to-end cold chain visibility to a broader cargo market. Better data and visibility mean customers should expect more from their insurer — it is now easier to price risk, spot and correct out-of-range events, and manage claims. In short, better data can turn the customer relationship with cargo insurance into a partner relationship.

How data is used is just as important. Sensor data is often only transferred when things go wrong. But how useful is that data without putting it into context? And what about near misses or the shipments that went right — and why? Clients and insurers can learn from good and bad shipments. The FAA, for example, investigates near misses at airports, not just plane crashes.

With more complete data collection, insurers can and should begin to tailor coverage to actual risk. Clients can use the data and related analytics to measure and improve performance, increase stakeholder accountability and make route, vendor, packaging and other improvements to better manage risk and lower premiums over time. 

The Insurer, Your New Supply Chain Partner

From there, it becomes possible to construct tailored coverage models around actual customers, shipping patterns and commodities. Each commodity can have parameters set on sensors to establish acceptable temperature ranges and fluctuations over specific times, with exception triggers tied to potential claim events.

The result is a shared, transparent record for all relevant parties of the time and duration of a temperature breach, indicating cause and potential responsibility. This allows for an expedited claim process and quick payment, freeing up working capital and keeping operations flowing. 

Customers can aggregate and analyze historical shipment and storage data to spot patterns and identify areas for improvement, including route, equipment, supplier, vendor and operations improvements. Those improvements help to reduce future risk and can be applied to adjust premiums as policies renew. Insurers can further refine underwriting standards and risk pricing models by using anonymized, aggregated industry-wide data. 

More complete and accurate supply chain visibility can redefine the customer relationship in cargo insurance. Technology presents partnership opportunities to drive continuous improvement and value creation, both in cold chain operations and insurer risk management and service offerings — all using the same data. As product visibility and accuracy improves, consumers of perishable foods and medicines benefit from fresher, healthier products in-store and on pharmacy shelves.

Connor McKim is senior manager of business development at Parsyl.