Definition:Open policy
📦 Open policy is a type of marine or cargo insurance contract that provides continuous coverage for multiple shipments over a defined period, rather than requiring the insured to arrange separate policies for each individual consignment. It is sometimes called a floating policy or open cover, and it is the backbone of commercial cargo programs for businesses with regular, high-volume shipping activity. The policyholder agrees to declare each shipment — typically by submitting periodic bordereaux or individual declarations — and the insurer covers each one automatically under the master terms.
⚙️ Under an open policy, the broad coverage terms, premium rates, deductibles, and limits are negotiated upfront and documented in the master contract. As shipments occur, the insured reports them — often monthly — detailing values, routes, and cargo types. The insurer then calculates the earned premium based on declared values and the agreed rate schedule. If the insured fails to declare a shipment, coverage may still attach (depending on policy language), but disputes over nondisclosure or late reporting can complicate claims. Some open policies set an aggregate limit per vessel, per location, or per period to cap the insurer's exposure on any single accumulation event.
🔑 For importers, exporters, and global supply chain operators, the open policy eliminates the administrative burden of arranging coverage shipment by shipment — a process that would be impractical for companies moving goods daily across multiple routes. From the underwriter's perspective, the arrangement provides a steady premium stream and the opportunity to build a long-term relationship with the insured, though it demands robust monitoring of declared values to guard against moral hazard and under-reporting. Open policies are also a common structure in Lloyd's and the London market, where coverholders may manage open cargo facilities on behalf of syndicates, adding a layer of delegated authority oversight to the arrangement.
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