Marine Insurance
What is Marine Insurance?
Marine insurance in shipping covers goods and cargo from when they leave the point of origin until they arrive at their final destination. It insures the ships, terminals, and all methods of forward freight where the goods are held against loss and damage.
What Does Marine Insurance Cover?
The scope of marine insurance can vary widely, but it generally covers several key areas:
- Cargo insurance: this is the most common form of marine insurance, covering loss or damage to goods while in transit by sea and also often extending to include air, road, or rail transport connected to the marine journey. Coverage can vary from “All Risks” to more limited forms, such as “With Average” (WA), which usually covers specific listed perils.
- Hull insurance: hull insurance covers physical damage to the ship or vessel itself, including its machinery and equipment. This coverage is essential for shipowners, protecting against hazards such as collision, fire, piracy, and weather-related damages.
- Liability insurance: also known as Protection & Indemnity (P&I), liability insurance provides coverage for the shipowner’s legal liabilities arising from the operation of the ship, such as damage to cargo (not covered under cargo insurance), injury, or death of crew members or passengers, and environmental pollution.
- Freight insurance: the shipper or carrier is protected against the loss of freight revenue that would not be earned due to lost or damaged cargo. It is particularly relevant for shipping companies and charterers.
- War risk insurance: given the unique risks posed by armed conflicts, war risk insurance offers coverage against damage or loss caused by war-related perils, including strikes, riots, civil commotions, and terrorist acts that are typically excluded from standard policies.
- Loss of hire insurance: this type of insurance provides compensation to the shipowner for loss of income when a vessel cannot be operated due to covered damage or peril, ensuring financial stability during repair or recovery periods.
Marine insurance coverage is highly customizable, allowing policyholders to tailor their coverage based on the specific risks associated with their maritime operations or cargo. It’s crucial for businesses engaging in marine transport to work closely with insurance providers to ensure comprehensive protection against the myriad sea risks.
Is Marine Insurance Mandatory?
As a general rule, global marine insurance isn’t mandatory to operate a shipping vessel or ship goods across the sea. That being said, there are two Incoterms where the seller is required under contract to provide marine insurance for the buyer. These are cost, insurance and freight (CIF) and carriage and insurance paid to (CIP). The other Incoterms don’t include insurance as a term of the contract. That doesn’t mean that the buyer or seller can’t or shouldn’t purchase coverage for their protection. Vessels are obviously extremely expensive (and cargo can be, as well) and severe damage, the outright loss of a vessel, and/or liability stemming from an accident at sea could lead to severe financial consequences for an organization.
How Marine Insurance Costs are Calculated
There are a number of factors that go into the cost of a marine ocean policy. These include, but are not limited to:
- Value of the cargo
- Condition of the cargo
- The route of the shipping vessel
- Companies’ claim history
- Insurer’s assessment
There are two main types of policies, single transit, or series of transits. When looking at a policy for a single transit, the premium focuses on the types of goods, including how they’re packed, the ports of origin and destination, and the total value of the goods.
When calculating the premium for a series of transits or an annual policy, additional factors are taken into consideration. These include an estimate of how many transits will take place and the total value of goods being shipped. At the end of the year, the insurers require a declaration statement to compare the estimates with the actual numbers. This can cause an adjustment to the price.
What are the Advantages and Disadvantages of Marine Insurance?
Marine insurance provides crucial protection for businesses involved in maritime activities. It’s important for all relevant stakeholders to assess their specific needs, understand policy terms, and comprehend the complexities of the marine insurance market to see which type of coverage is right for your needs.
The advantages of marine insurance include:
- Risk mitigation: provides protection against financial losses resulting from various risks such as damage to the vessel, cargo, or liability for third-party injuries and property damage.
- Business continuity: in the event of a covered loss, marine insurance helps businesses maintain financial stability and continue operations by providing compensation for the damages incurred.
- Global coverage: offers coverage for vessels navigating international waters, providing a broad scope of protection for businesses engaged in global trade.
- Customizable coverage: tailored policies for your specific needs, covering different aspects such as hull insurance, cargo insurance, and liability coverage, allowing you to choose the coverage that suits your operations.
The disadvantages of marine insurance include:
- Cost: premiums for marine insurance can be relatively high, especially if the insured vessels or cargo operate in high-risk areas, or if there’s a history of claims.
- Complexity of policies: may include various conditions, exclusions, and deductibles. Understanding the terms and conditions can be challenging.
- Deductibles: the insured party must contribute a certain amount towards a claim before the insurance coverage takes effect.
- Exclusions and limitations: these can affect coverage. It’s essential for policyholders to be aware and to understand the extent of coverage provided.
