What Is Open Cover?
Let me explain what open cover is—it's a form of marine coverage that insures your cargo for the duration of an insurance policy. If you're running a marine cargo company with frequent shipments, this is the policy you might want to look into. It gives you blanket coverage, so you don't have to buy a new policy every single time you send out a shipment. You'll see it used a lot in international trade, especially by companies handling high volumes over extended periods.
Key Takeaways
- Open cover is insurance provided to companies engaged in the marine business.
- An insurer provides insurance to all of the cargo shipped under an open cover marine policy.
- The insurance policy for open cover can be either a renewable policy for each shipment or a permanent policy, covering many shipments.
- Risks to cargo include sinking, piracy, damage from loading/unloading, and infestation.
- A policyholder must disclose all pertinent information and fill out certificates with detailed information regarding each shipment.
- Countries govern their waters, so marine insurance regulations are under the control of the governments where any losses may occur.
Understanding Open Cover
You need to know there are plenty of risks in marine shipping that make insurance essential—things like damage during loading or unloading, infestations, sinking, piracy, bad weather, and similar issues. Marine insurance usually splits into coverage for the ship itself, called hull and machinery, and separate coverage for the cargo. Each part needs its own policy.
If your company doesn't ship often, you can go for a renewable policy that you renew after it expires for each voyage. But if you're expecting a lot of shipments, most companies like yours opt for a permanent policy covering a specific time frame. This permanent setup covers all voyages in that period without negotiating terms for each one—it's blanket coverage where you just notify certain details before setting off.
Since you're committing to a longer-term contract, you might get lower premiums. The insurer saves on admin work and gets guaranteed income over time. You typically pay premiums when you declare a voyage, say weekly or monthly.
Remember, individual countries handle insurance regs for international shipping—no global body oversees it. Places like Scandinavian countries, the U.K., and increasingly China are big players in underwriting these policies.
Facultative vs. Open Cover
Marine insurance comes in two main types: facultative and open cover. With facultative, the insurer has the choice to cover the cargo or not, and you have to negotiate terms for every shipment—including coverage type, cargo details, and the ship involved.
Open cover is different—the insurer must provide coverage as long as the cargo fits within the policy's outlined boundaries and the shipment is during the policy period. This setup makes open cover a kind of treaty reinsurance.
Requirements for Open Cover
Think of an open cover policy as a contract of utmost good faith—you, as the insured, have to voluntarily share all relevant info about the risks with the insurer. If you don't, the policy could be voided. To help with this, the insurer gives you certificates to fill out for every cargo shipment.
You record details like the cargo's value, the travel period, and locations in the certificate. The policy terms set a max value for covered cargo in a defined period—once you hit that, you need a new agreement. And since countries control their own waters, any losses fall under the regulations of the government where the loss happens, not necessarily yours or your company's.
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