The Underestimated Risks in UAE's Haulier Liability Insurance Trend.

Introduction

In the United Arab Emirates, the logistics sector plays an integral part in the nation's economic development. Hauliers, or trucking companies, are at the heart of this, providing the essential service of transporting goods across various parts of the country. However, a concerning trend has been emerging: cargo owners are increasingly depending on hauliers to secure liability insurance, thereby avoiding their own responsibilities to insure the goods they own. This practice is presenting new challenges, particularly for insurers in the UAE, which need to be carefully considered.

The Shift from Cargo Insurance to Haulier Liability Insurance

Traditionally, the onus of taking out cargo insurance was on the cargo owner. The insurance would cover losses or damage to the goods during transit. However, the new trend sees cargo owners forgoing this safeguard, instead insisting that hauliers provide liability insurance as a condition for awarding business contracts.

This shift does not just affect the cargo owners and hauliers but also has a direct impact on insurers. Many insurers in the UAE are reconsidering their participation in this line of insurance due to increasing losses, both in frequency and severity.

One of the most alarming side-effects of this evolving trend is the reduced penetration of cargo insurance in the market. As more cargo owners avoid their traditional responsibility to secure cargo insurance, the demand for these specific insurance policies has notably decreased. This decline poses a significant concern for insurers who have specialized in cargo insurance, as they now face a shrinking market share and a consequential impact on their revenue streams.

The reduced penetration of cargo insurance also leaves a gaping hole in risk coverage. While haulier liability insurance is essential, it's designed to cover the haulier's legal liability and may not necessarily protect the full value of the cargo. This lapse exposes cargo owners to the risk of significant financial losses, a blind spot that many seem to underestimate.

The Absence of Clearly Defined Contracts

The lack of specificity in contracts between cargo owners and hauliers contribute to the insurance challenges. Typically, a well-drafted contract of carriage should specify the limit of liability and mention any defenses that a haulier can rely upon in case of an unfortunate event. However, in the current scenario, many of these contracts do not contain such provisions. This omission leaves a grey area, making it difficult for insurers to assess risks accurately and for hauliers to defend themselves when disputes arise.

The Consequences of High Losses

For insurers, the high losses associated with haulier liability insurance are causing them to either increase premiums or withdraw from this line of insurance altogether. Consequently, hauliers are left with limited options, often having to settle for higher-cost insurance plans. In the worst-case scenario, if more insurers opt-out, we could be looking at a potential crisis of uninsured or underinsured hauliers in the sector.

A Call for the Application of the CMR Convention: The Best Practice

One viable solution to address these challenges would be to make the CMR Convention automatically applicable in the UAE. Although the UAE is a signatory to the CMR Convention, which outlines the rights, duties, and liabilities of parties involved in the transport of goods by road, its provisions are not automatically applied. The convention sets out a standard level of haulier liability and can offer protection to all parties involved. Automatic application of the CMR Convention would add a much-needed layer of clarity and standardization to contracts, effectively minimizing disputes and providing a clearer framework for insurers.

By embracing the CMR Convention as the governing standard, the UAE could take a significant step towards creating a more stable and predictable environment for hauliers, cargo owners, and insurers alike. This move would not only help manage and mitigate risks but also re-energize insurers' confidence in providing coverage for this sector.

The Bottom Line:

The current trend in the UAE’s logistics sector, where insurance responsibilities are shifting from cargo owners to hauliers, is not just a temporary phase but a substantial issue that threatens the stability of the industry. Adopting the CMR Convention as a mandatory standard can help in rebalancing the scales. It's a wake-up call for all stakeholders to reassess and realign their risk management strategies. In embracing the CMR Convention, we ensure a safer, more secure future for the UAE's logistics sector.

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