In modern days, the international trade is largely depend on ships and the sea is still the most preferred mode to trade related transport.Water transportation causes a lot of worry to the transporters .Beside this there are some natural events which have the potential to harm the cargo and the vessel. In some cases other incidents and attributes which could cause a huge loss in the financial casket of the transporter and the shipping corporation. Marine insurance policy manage the risks happening of any unfrozen contingency.
Marine Insurance definition
Marine insurance is a variant of the general term ‘insurance’ and as the name suggests is provided to ships, boats and most importantly, the cargo .
Importance of Marine Insurance
This type of insurance policy is very important because ship owners and transporters can be sure of claiming damages through marine insurance especially considering the mode of transportation used .
Any insurance is planned to manage risks in the event of unfortunate occurrences like accidents, damage to the property and environment or loss of life. When risk comes to Ships, the results are higher as all factors are involved in the operation, i.e. risk of losing valuable cargo or expansive ships, the risk of damage to the environment due to oil pollution and risk of losing precious lives of seafarers due to accidents.
Like any other insurance marine insurance policies provide coverage for unfortunate events such as accidents,property damage and damage to the environment.Some advantages of marine insurance are:
- Comprehensive Coverage against All Risks Related to Marine :A marine insurance policy offers comprehensive coverage against all potential risks related to marine accidents.
- The flexibility of Coverage :Most of the marine insurance policies are flexible enough to fulfill the various needs of the insured.
- Claim survey and Settlement Assistance across the globe :Most of the marine insurance policies are flexible enough to fulfill the various needs of the insured.
- Claim survey and Settlement Assistance across the globe options to extend the coverage for riots, strikes, and perils : One can extend the coverage of the marine insurance plan against perils, strikes, and riots as well.
- Customization Options to fulfill the Requirements of the Insured : One can extend the coverage of the marine insurance plan against perils, strikes, and riots as well.
Perils covered by Marine insurance
The scope of the marine insurance policy depends on the risks it covers. Here, risks are termed as perils. Perils are referred as causes of events. The various kinds of perils are :
- Maritime Perils : The events which are created by God or man made. God created events are earthquake, collision, storm, lightning, and entry of sea water into the vessel, volcanic eruption, rain water damage and washing overboard of cargo.
Events made by man are fire, smoke, water used to extinguish fire, piracy, barratry (fraud, gross criminal negligence of the crew to prejudice ship owner), sabotage, vandalism etc.
- Extraneous Perils : These are incidental perils which are caused due to faults in loading, carrying and unloading. For examples rough handling, leakage, breakage, pilferage and non-delivery etc.
- War Perils : War including civil war, revolution, rebellion and detainment of the carrier etc. are created perils which are related to loss.
If the goods are forfeited by the customs on charges of smuggling, then insurance does not cover.
- Strike Perils : It is related to damage or loss due to lockouts, strikes, labor disturbances, riots, and civil commotion and by any terrorist acting from political motive.
Types of marine insurance
- Marine Cargo Insurance : Cargo insurance serves especially to the marine cargo carried by ship and also pertains to the belongings of a ship’s voyages. It defend the cargo owner against damage or loss of cargo due to ship accident or due to delay in the journey or unloading. This insurance has third-party liability coverage the damage to the port, ship or other forms of transport (rail or truck) resulted from the dangerous cargo carried by them.
- Hull Insurance : Marine Hull insurance mainly provides to the torso and hull of the vessel along with all the articles and pieces of furniture on the ship. Hull insurance is mostly taken out by the ship owner to avoid any loss to the vessel in case of any mishaps occurring.
- Machinery Insurance : Under this insurance all the necessary machinery are protected and in case of any operational damages, claims can be compensated (post survey & approval by the surveyor).
Hull and machinery insurance also come as one under Hull and Machinery (H and M) Insurance. The H and M insurance can also be extended to cover war risk and strike (strike in port may lead to delay and increase in costs).
- Protection and Indemnity (P and I) Insurance : P & I insurance is provided by the (P and I) club, which is ship owners mutual insurance covering the liabilities to the third party and risks which are not covered elsewhere in standard (Hull and Machinery) and other policies.
- Protection : Risks which are connected with ownership of the ship. E.g. Crew related claims.
- Indemnity : Risks which are related to the hiring of the vessel . E.g. Cargo-related claims.
- Liability Insurance : Liability insurance is that type of marine insurance where compensation is sought to be provided to any liability occurring on account of a ship crashing or colliding and on account of any other induced attacks.
- Freight, Demur-rage and Defense (FD and D) Insurance : Often referred to as (FD and D) or simply “Defense,” it provides claims for handling assistance and legal expense for a wide extent of disputes which are not insured under (H and M) or (P and I) insurance.
- Freight Insurance : This insurance provides and offers protection for goods during shipment which stand a chance of losing money in case the cargo is lost due to the ship accident . This insurance coverage the problem of companies losing money because of a few unprecedented events and accidents happening.
Various kinds of marine insurance policy
In addition to these types of marine insurance, there are also various types of marine insurance policies which are offered to the clients by insurance companies .The different types of marine insurance policy are detailed below:
- Voyage Policy : A voyage policy is a marine insurance policy which is valid for a particular voyage.
- Time Policy : Time policy is a marine insurance policy which is valid for a specified time period – generally valid for a year .
- Mixed Policy : A mixed insurance policy which offers a client the benefit of both time and voyage policy is classified as a mixed policy.
- Open (or) Unvalued Policy : In this type of marine insurance policy, the value of the cargo and consignment is not put down in the policy before hand. So reimbursement is done only after the loss of the cargo and consignment is investigate and valued.
- Valued Policy : Valued policy is the opposite of an open marine insurance policy. In this policy, the value of the cargo and consignment is determined and is written in the policy document before hand. It is making clear about the value of the reimbursements in case of any loss to the cargo and consignment.
- Single Vessel Policy : This policy is suitable for small ship owner having only one ship or having one ship in different fleets. It covers the risk of one vessel or ship.
- Floating policy : It is a marine insurance policy where a fixed sum of claim is specified and all other details are omitted till the time the ship embarks on its journey. For ship owners or clients this is the most ideal and feasible marine insurance policy who undertake frequent trips of cargo transportation through waters.
- Port Risk Policy : This kind of marine insurance policy is risk cover to ensure the safety of the ship when it is stationed at the port.
- Fleet Policy : In this policy, several ships belonging to one owner are insured under the same policy.
- Block Policy : Block policy covers the cargo for every risk of land(all the risks of rail, road) and water to protect the cargo owner against damage or loss .
- Wager Policy : This kind of marine insurance policy is taken out in order to ensure the safety of the ship while it is stationed in a port.
Functions of Marine Insurance : covers the factors
Marine insurance covers any damages or losses due to factors which are given below :
- Fire or explosion, stranding, sinking etc
- Collision, overturning or derailment of land conveyance
- Discharge of cargo at the port of distress
- General average sacrifice salvage charges
- Jettison or washing overboard
- Earthquake or lightning
- Total loss of package where lost overboard or dropped in loading or unloading
Policy of marine insurance doesn’t coverage any damages or losses due to factors mentioned below:
- Loss or damage attributed to willful misconduct of the insured
- Insufficiency or unsuitability of packaging of the cargo insured
- damage or loss due to any financial default or bankruptcy or insolvency of the ship owner.
- Ordinary leakage or wear and tear of the goods insured.
- War and SRCC(Strikes, Riots and Civil Commotion).
It also includes open assets of Onshore and Offshore (container terminals, ports, oil platforms, pipelines), Hull, Marine Casualty, and Marine Liability.
Shipping insurance is also used, when goods are transported by mail or courier.
Therefore, in the interest of the policy holder , it is beneficial and relevant to have the right types of marine insurance. Insurance solves problems not just in the short run, but also in the long run as well.