Insurance market braces for IATA DAWB liability changes fallout

The insurance implications of IATA’s controversial Direct Air Waybill (DAWB) changes are emerging as one of the biggest concerns for freight forwarders, with industry experts warning that existing liability policies may no longer match the risks firms face.Â

The revised framework, which took effect on 1 July, has prompted criticism from FIATA and forwarding associations over concerns it could make freight forwarders responsible for liabilities traditionally borne by shippers.Â

While the legal implications are still being debated, insurers are already assessing what the changes could mean for underwriting.Â

Matthew Phillips, co-founder and chief operating officer of cargo insurance platform Breeze, told The Loadstar that traditional forwarder liability insurance was never designed to cover the expanded exposure the new framework could create.Â

“Traditional forwarder liability insurance is based and mainly priced around what forwarders actually control – their own errors, omissions and negligence in arranging the movement,” he explained. Â

“If this revised framework effectively makes forwarders the contractual shipper of record, there is a real mismatch between the risk forwarders are now exposed to and the risk their existing policies were built to cover.”Â

Mr Phillips said insurers could respond by increasing premiums and tightening underwriting requirements.Â

“This would especially apply to forwarders who are not on top of managing this new exposure,” he urged.Â

“Insurers could introduce specific exclusions around shipper originated risks, for example misdeclarations.”Â

The concerns echo those raised by Brandon Fried, executive director of the Airforwarders Association (AfA), who previously told The Loadstar that forwarder liability insurance was written around what forwarders actually do, not around shipper obligations, raising the prospect of coverage gaps if they are treated as contractual shippers.Â

Mr Phillips said the industry should not wait for insurers or airlines to determine how the new rules would operate before taking action.Â

“The smartest move for forwarders isn’t to wait for this to play out, it is to push for the underlying cargo risk to be comprehensively covered by the shipper, through a proper all risks cargo insurance policy on the shipment itself.”Â

He advised that ensuring shippers had adequate cargo insurance represented an immediate way of mitigating risk without waiting for annual liability policies to be renegotiated.Â

Mr Phillips warned: “Without a doubt, this is a significant and perhaps abrupt reallocation of risk. Liability is supposed to track control, and this ruling opens this up for debate and has naturally caused an uproar.Â

“A potential new framework that can make the booking agent essentially liable for a shipper’s misdeclaration or a carrier’s mishandling is going to cause confusion, even more so when there is no consistent implementation across airlines, which means forwarders are going to have to negotiate terms carrier by carrier with total uncertainty about what they are signing up for.”Â

He added that introducing the changes without allowing time to assess their legal and insurance consequences would put the cost of the transition “disproportionately” on smaller to mid-size forwarders, who may not have the balance sheet to fund the gap.Â

“Make sure you check your own liability cover in detail, check the terms with the airline and always, without fail, check whether your shipper is carrying their own cargo insurance and if not, offer them a simple per shipment solution,” he advised forwarders. Â

IATA has said the amendments are intended to strengthen the contractual framework around direct air waybills, while FIATA continues to press for a formal review of the changes and greater clarity over how they will be implemented. Â

Glyn Hughes, director general of Tiaca, told The Loadstar: “The IATA air Cargo Agency program was established over 5 decades ago when relationships were vastly different from today.  Â

“Cargo Agents were agents of the carrier when executing an AWB and also acted as agents of the shipper when completing the AWB, however when consolidations were introduced roles started to evolve and the freight forwarder no longer acted as an agent but rather as a contracting principal with the carrier,” he explained. Â

“So, whilst the current Agency Program, together with associated program CASS, has been adapted over the years the roles have become blurred and it’s difficult to administer and difficult to operate under ambiguity.”Â

Mr Hughes noted that while IATA and FIATA have tried to create a program to help bring clarity to roles, rights and obligations, “success has not been achieved”. Â

But he added: “This latest dispute just further illustrates the need for disconnecting the past with the promise of what tomorrow can bring. IATA and FIATA are both incredibly important bodies that represent two of the most important stakeholders in the air cargo supply chain.  Ideally, they would work in tandem to help increase air cargo’s global share of trade from the current level of around 1% by volume.”Â

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