• Types of insurance cover to protect your business

    Chapter 3 - Cotton marketing - Insurance in an uncertain world 


    The types of insurance that might be considered for protecting a business include:

    • Comprehensive cargo insurance can include all named physical losses or damage to the cotton, seed, linters or other named goods while the business has an insurable interest.
    • Property all risks, which may include all named physical losses or damage to the business’s buildings, contents and named equipment while it has an insurable interest.
    • Money in transit is aimed at buying agents who carry cash. Money in transit cover from the risks of theft can be included as part of a general cargo policy.
    • Strike, riot, civil commotion or malicious damage cover will include physical losses to the insurable interest.
    • War at sea or on land or terrorism is physical damage caused by war, whether in marine transit or in storage, and including acts of terrorism.
    • Non-delivery or non-payment following political events such as embargo, cancellation of previously valid import or export licence, confiscation of the cotton or non-contractual non-honouring of the contract by a foreign state entity. 

    Figure 3.4 illustrates the options available to a cotton trader. Cover can be bought in isolation or in combination.

    Insurance through the stages of the cotton production process

    Through the cotton production process there are many stages at which materials or products pass from one owner to another. Overall the risks to consider at each stage are flooding, fire, lightning, explosion, destruction or damage following strike or riot, theft and burglary. Deterioration due to excessive moisture content, prolonged storage or infestation should be considered, but not all those will be insurable. 


    In order to purchase cover, the business must have a valid insurable interest. Figure 3.5 shows a typical supply chain for cotton. Some examples of key considerations at various stages in this process are discussed below, as well as the application of insurable interest.



    Stage 2 to 3 – Ownership at inland gins or warehousing

    At this stage, post-ginned cotton is often wrapped in marked bales with the owner’s mark stamped onto the wrapping, which is secured by metal bands. Cotton can be stored within warehouses, or outside on tarpaulins or on pallets. Damage by adverse weather or damage by fire are examples of recognized chance events. It is important to have strong inventory records and controls in order to be able to show exposures.

    Stage 2 to 3 to 4 – Inland transit to port or warehouse

    Cargo is often moved by independent hauliers or transported by railcar, and therefore shipments should be checked for quality, weight and moisture content. The use of the business’s own personnel or designated collateral managers for quality and quantity control should be encouraged to minimize the risk of fraud or receiving damaged cotton.

    Stage 2, 3, 4 and 5 – Warehousing

    The better the quality of the warehouse and operator the easier it is to obtain cover and negotiate favourable terms and conditions. When providing cover, insurance companies wish to know and understand how the insured business operates. It is important that cotton is stored in an easily identifiable manner, using a numbered bay system in the warehouse with the bay numbers and boundaries painted on the floor. Cotton should always be stored on dry, clean wooden baulks or pallets, off the floor, away from walls.



    Usually the risk of faulty or improper ginning cannot be insured but there are some measures a trader can take to minimize this exposure. Measures include a strong relationship with the buyer, previous knowledge of the ginner and good quality control.


    Exporters should bear in mind that at all times the cotton travels and is stored at their risk. There is also the obligation to deliver a particular quality and quantity at a given time and place. Poor management of the risks to FOB may ruin any chance of claiming a mishap on force majeure.

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    Cotton Exporter's Guide

    Brochure - African cotton promotion
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