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Wouldn't it make more sense to pay the insurance up front, though? Or at least reserve money for it up front?
by timeeater 6y ago
Wouldn't it make more sense to pay the insurance up front, though? Or at least reserve money for it up front?
- arcticbull 6y agoDepends on how well it's averaged. If you want to create a proper ex-ante insurance policy, you need underwriters, you need lawyers, you need adjusters, you need to determine premiums, collect premiums, pool the money, and then distribute it. These people all need to be paid, and so you must charge a premium over the actual cost. Or, you can take the total lost cargo, divide it by the total value shipped, and send a QuickBooks invoice to everyone. So long as the risk pool is large enough, and everyone involved is fairly trustworthy, it makes sense. Definitely unparalleled on land, to my knowledge!
- timeeater 6y agoWhy does doing it upfront require so many people, and doing it afterwards doesn't? You could just have a standard formula for upfront insurance?
- arcticbull 6y agoWho's going to figure out how much to charge? :)
- timeeater 6y agoThe standard formula?
- arcticbull 6y agoGot a link? ;) Actuaries hate him!
- timeeater 6y agoWell the industry would have to make a one-time investment to determine the formula.
- croon 6y agoUpfront you don't know how much, if anything, will be lost.
- timeeater 6y agoBut everybody knows the value of their goods?
- croon 6y agoDo you have a point? Because it sounds like you're suggesting regular insurance, which answers your original question.
- timeeater 6y agoBut to take regular insurance, you don't need all those complicated things. I have for example a travel health insurance that only requires me to send a fixed amount of money to their bank account, instant insurance. Yeah my point is/was that you can just use regular insurance. That's my point. Or at least I don't see why not. Presumably the shipping industry has a reason.
- croon 6y ago> But to take regular insurance, you don't need all those complicated things. I have for example a travel health insurance that only requires me to send a fixed amount of money to their bank account, instant insurance. Long story short: your travel insurance has all those complicated things, and you pay for it. And you also pay for the convenience of not seeing that complexity. The cost of explicitly covering only costs incurred on accidents, like in the shipping industry OP case, would give you a much much lower cost on your travel insurance (technically no longer an insurance). But then you would have to pay irregular amounts on irregular occasions. You also pay a premium to get a fixed budgetable amount.
- timeeater 6y ago
- eru 6y agoNot everyone involved needs to be trustworthy. Eg the shipping operator doesn't have to trust the customers: possession in nine tenths of the law, and the former already possess the latter's cargo. Similar, the declaration of value is somewhat self-enforcing: if you declare a high value, you get paid out more if your stuff drops into the ocean. But you also pay a bigger share, if someone else's containers drop in the ocean.
- andy_ppp 6y agoIf you have a million containers you’ll be transporting every year insuring all of them is pointless you may as well just be your own insurer and take the hit when things go wrong. It largely will work out cheaper as there is no middle man and you have loads of money from your successful business to dip into should you lose a few.
- eru 6y agoAnd you can reach out to a (re-)insurer to cover losses that exceed some threshold.
- timeeater 6y agoDoesn't matter who does the insuring (external company or shipping company itself), the point is still that it would be better to have the insurance up front, instead of this risk of additional costs of arbitrary height?