International traders and their brokers must be aware of the risks involved in trading and insuring commodities in the African market. The economic boom in Africa is encouraging more trade, which means more insurable assets in Africa leading to more insurance claims. Unlike in the past, there is now a business incentive for transport insurers to start recovery actions in Africa (rather than simply footing the bill) as the losses in traded commodities are growing.
The African market is dominated by international traders who rely on global transport insurers to underwrite their risks. There are few domestic participants in the highly regulated Africa transport insurance market.
There are many statutory insurance regulators in African countries who, under domestic insurance legislation, require any assets within that country’s jurisdiction to be insured with a local insurance company. African insurance regulators often also require that only locally licensed brokers, loss adjusters and surveyors are involved with the insurance of a local asset. Failure to comply with these requirements is typically a criminal offence.
In some circumstances, the liability for a transgression of the local insurance regulations can lie not only with the insurer or insured company itself, but also personally with the board of directors or managers of the insurer or insured company.
An insured person or company may well think that once it has been indemnified by its insurer and received payment for its loss under its insurance policy, it is no longer involved with the recovery action. This is not correct. Under the doctrine of subrogation, the insurer is permitted to commence recovery action in the name of the insured, and the insured is obliged to reasonably assist the insurer with its attempts to recover the loss. If the recovery action is commenced in an African country which has a regulated insurance industry, the insured, amongst others, may be exposed to the risk of non-compliance with local insurance legislation.
The increased enforcement by African insurance regulators of domestic regulations means that commodity traders, transporters and their insurers must be aware of the insurance arrangements set out in their commercial transactions.
For example, if a seller based in Germany sells a cargo to a buyer based in Zambia on a CIF or CIP sale, the seller contracts for insurance against the buyer’s risk. The buyer, based in Zambia, has no obligation to arrange for insurance. The German seller has to arrange the insurance from point of delivery to the destination, Zambia. If the seller is not accustomed to Zambian insurance regulations, it may be better to require the buyer to negotiate the insurance and use FOB or FCA INCOTERM.
With the increase of trade in Africa, compliance with African insurance laws by both the trader and its insurer is going to become more important as more recovery actions are pursued for damaged cargo.