High-value transportation disruption risk management: Shipment insurance with declared value

Shipment insurance has been widely used in express logistics and airline transportation. If a customer purchases a shipment insurance service and a disruption occurs, he could be compensated based on the declared value. This paper studies two contracts and investigates how shipment insurance premium affects the ex ante declared value and the ex post compensation. The customer purchases shipment insurance only when the cargo value is relatively high and his declared value does not exceed the actual cargo value. The optimal insurance premiums for both contracts and contract preference are obtained. Finally, we investigate the impact of effort towards transport process improvement.