Comments on Irrespective of Percentage

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Question from D.D.:
Hello Kim,
Could you transmit what follows to the learned editors:
A DC calls for an insurance document issued irrespective of percentage. The document specifies (twice) "irrespective of percentage" but also and most unfortunately "deductible: 1% of sum insured". According to UCP 28 j as explained by ISBP 177, the document would be discrepant: conflicting data. But I am not sure because I have read that "irrespective of percentage" relates to franchises and only sometimes, so not always, to excesses and deductibles. I was even told that "irrespective of percentage" has nothing to do with an excess or deductible. Therefore ISBP 177 would not be entirely correct. After all, there are other matters at issue in the ISBP. The question, of course, is: does the ID comply?
Thanks very much and regards
D.

Response from T.O. Lee:

Dear All,
This query is not determinable from the way it is put forward. I need to see the exact wordings in the LC, the exact wording in the insurance document before I can say anything as there are many variables, possibly affected by other terms of the credit.
Having said that, "irrespective of percentage" is a term mostly used by the smart fools, shall I say this. They know something about cargo insurance from seminars and wish to show off in drafting the LC terms, with an original intent to protect themselves as the applicants. But in fact they are committing suicide.
All cargo insurance premiums are intended to offer the most competitive rate to the "consumers", playing a balance amongst costs, benefits and probability of claims under a certain "peril". So the smart fool needs not be bordered about which insurance term is working to his best interest. Someone has already done this for him. If he tries to be smart and does not follow the norm, he is in fact looking for troubles, for himself as for others, such as bankers who have to argue whether this "irrespective of percentage" is a discrepancy or not.
To put it simple. It is like going to a restaurant. Instead of ordering the USD45 pre-fix or set dinner menu (comprising of tomato cream soup, Greek salad, 12 oz AAA Angus sirloin steak, chocolate tart, coffee), the smart fool orders from the a la carte menu (for lentil soup, Caesar salad, 12 oz AAA rib eye steak, chocolate tart, tea) that costs him USD60. He is getting almost the same thing but has to pay USD15 more. The set menu is "franchise, deductible or excess". The a la carte menu is "irrespective of percentage".
Take commodities as an example, according to statistic, about 5% of steel goods will arrive with some form of rust. Nobody can get away from this due to steel goods being exposed to hot, salty and moisture laden air in the open seas for weeks in the sea voyage. This is "Act of God" (Who makes everything in the universe) :-). In fact insurers never use such imprecise term like "Act of God". They use more specific term under the group of risks named "perils of the sea".
So if the smart fool asks for "irrespective of percentage", he should mean making claims. Then very good, the insurer will re-calculate the premium and also realises that for steel goods, 5% claim is almost certain. So the insurer would add 5% of value of goods plus a safety factor say 1%, all together 6% of invoice value on the premium. When the smart fool makes a claim, he is in fact getting back what he has paid for, the 5%, losing 1%, on the value of the goods.
In Hong Kong, we call a smart fool "a pig wearing a crocodile mask" and a really smart guy (pretending to be a fool) "a crocodile wearing a pig mask". Let us call them Mr. PC and CP respectively.
Let us compare the results. Mr. PC (asking for "irrespective of percentage") and his friend Mr. CP (accepting deductible) each makes 10 shipments of steel goods in a year and makes one claim for total loss.
PC claims 9 times for 5% loss due to rust and one time for total loss, getting full invoice value, no deduction on this one claim.
CP claims only once for total lost, getting 95% of the invoice value.
For the 10 claims, PC is getting back what he has paid for the 5% loss. He loses the 1% safety factor on invoice value for 10 times.
For 1 claim, CP losses 5% of the invoice value. But he pays much less in premium.
Compared with PC, PC has savings of USD10K or more, depending on the value of each shipment.
If the insured agrees to take 5% deductible, franchise, excess, however named, he is saving much more on premium because the insurer knows that the chance of claim is very low. The premium is much much less.
I would encourage bankers to tell this story to their smart fool customers to make this "irrespective of percentage" disappear from now on. This term only shows that the applicant is a smart fool, finding troubles for himself as well as for others who work with him or for him.
I would recommend a new article in UCP 700 (if there would be one):-)
Article 28 (k) of UCP 700
If the credit stipulates "irrespective of percentage" or similar wordings, this will be ignored in document examination for compliance.
T. O.

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