What is Marine Insurance?
Marine insurance refers to a contract of indemnity. It is an assurance that the goods dispatched from the country of origin to the land of destination are insured. Marine insurance covers the loss/damage of ships, cargo, terminals, and includes any other means of transport by which goods are transferred, acquired, or held between the points of origin and the final destination.
The term originated when parties began to ship goods via sea. Despite what the name implies, marine insurance applies to all modes of transportation of goods. For instance, when goods are shipped by air, the insurance is known as the contract of marine cargo insurance.
Importance of Marine Insurance
Marine insurance is required in many import-export trade proceedings. Admitting the terms, both parties are liable for the payment of goods under insurance. However, the subject matter of marine insurance goes beyond contractual obligations, and there are several valid arguments necessary for buying it before dispatching the export cargo.
Goods in transit need to be insured by one of the three parties:-
- The Forwarding Agent
- The Exporter
- The Importer
Also, it can be taken by anyone involved in the transit of goods.
Where to get Marine Insurance?
The process to purchase marine insurance in India is easy. The country’s geographical position allows many banks and financial institutions to provide marine insurance.
Marine Insurance Act 1963
The Marine Insurance Act, in India, came into existence in 1963. As per section three of the act, any time the term ‘marine insurance’ is used, expressed or even extended for the insuring of goods against loss or damage, the insurer will be at risk to bear the charges. The insurer will consider all the certainty of goods in case of misfortune sustained during marine ventures.
Principles of Marine Insurance
Principle of Good faith - Parties demand absolute trust on the part of both; the insurer and the guaranteed.
Principle of Proximate Cause - The proximate cause is not adjacent in time; also, it is inefficient. Nevertheless, it is the definitive and adequate cause of loss.
Principle of Insurable Interest - Any object presented as a marine risk and the assured covering the insurance of goods - both should have legal relevance. Also, a series is devoted called 'Incoterms' to respectfully assign the insurance of goods to each party.
Principle of Indemnity - The insurance extended to the parties will only be applicable up to the loss. The parties can't buy insurance to gain profits. If they do, they won't get more than the actual loss.
Principle of Contribution - Sometimes, the risk coverage for goods has more than one insurer. In such cases, the amount has to be fairly distributed amongst the insurers.
Features of Marine Insurance
How Marine Insurance works?
Marine insurance best transfers the liability of the goods from the parties and intermediaries involved to the insurance company. The legal liability of the intermediaries handling the goods is limited to begin with. The exporter, instead of bearing the sole responsibility of the goods, can buy an insurance policy and get maritime insurance coverage for the exported goods against any possible loss or damage.
The carrier of the goods, be it the airline or the shipping company, may bear the cost of damages and losses to the goods while on board. However, the compensation agreed upon is mostly on a ‘per package’ or ‘per consignment’ basis. The coverage so provided may not be sufficient to cover the cost of the goods shipped. Therefore, exporters prefer to ship their products after getting it insured the same with an insurance company.
The Scope of Marine insurance is necessary to meet the contractual obligations of exports. To align with agreements such as cost insurance and freight (CIF) or carriage and insurance paid (CIP), the exporter needs to take marine insurance to protect the buyer’s or their bank’s interest and honor the contractual obligation. Similarly, in the case of Delivered Duty Unpaid (DDU) and Delivered Duty Paid (DDP) terms, the seller may not be obligated to insure the goods, although in practice they generally do.
To get marine insurance and avoid insurance claims, ensure the following:
Packing of goods should be done keeping in mind their safety during loading and unloading
Packing should be good enough to withstand natural hazards to the best extent possible
Keep in mind the possibility of clumsy handling or theft when packing goods.
How to calculate Marine Insurance Premium?
Types of Marine Insurance
- Freight Insurance
- Liability Insurance
- Hull Insurance
- Marine Cargo Insurance
In freight insurance, for example, if the goods are damaged in transit, the operator would lose freight receivables & so the insurance will be provided on compensation for loss of freight.
Marine Liability insurance is where compensation is bought to provide any liability occurring on account of a ship crashing or colliding.
Hull Insurance covers the hull & torso of the transportation vehicle. It covers the transportation against damages and accidents.
Marine Cargo Insurance
Marine cargo policy refers to the insurance of goods dispatched from the country of origin to the country of destination.
Types of Marine Insurance policies
- Floating Policy
- Voyage Policy
- Time Policy
- Mixed Policy
- Named Policy
- Port Risk Policy
- Fleet Policy
- Single Vessel Policy
- Blanket Policy
Floating in Marine Insurance policy, large exporters may opt for an open policy, also known as a blanket policy, instead of taking insurance separately for each shipment. An open policy is a one-time insurance that provides insurance cover against all shipments made during the agreed period, often a year. The exporter may need to declare periodically (say, once a month) the detail of all shipments made during the period, type of goods, modes of transport, destinations, etc.
A specific policy can be taken for a single lot or consignment only. The exporter needs to purchase insurance cover every time a shipment is sent overseas. The drawback is that extra effort and time is involved each time an exporter sends a consignment. With open policies, on the other hand, shipments are insured automatically.
Time policy in marine insurance is generally issued for a year’s period. One can issue for more than a year or they may extend to complete a specific voyage. But it is normally for a fixed period. Also under marine insurance in India, time policy can be issued only once a year.
Mixed policy is a mixture of two policies i.e Voyage policy and Time policy.
Named policy is one of the most popular policies in marine insurance policy. The name of the ship is mentioned in the insurance document, stating the policy issued is in the name of the ship.
Port Risk policy
It is a policy taken to ensure the safety of the ship when it is stationed in a port.
Several ships belonging to the company/owner are covered under one policy. Where it has the advantage of covering even the old ships. Also the policy is a time based policy.
Single Vessel policy
In single vessel policy only one vessel is covered under marine insurance policy.
In this policy, the owner has to pay the maximum protection amount at the time of buying the policy.
Which clauses cover Marine Insurance?
The Maritime insurance coverage provided by marine insurance can be understood by going through the risks handled by the insurance policies loaded with various marine insurance clauses:
Institute Cargo Clause C provides basic coverage and includes a restricted list of risk covers. It covers the shipment against events such as fire, discharge of cargo in case of distress, explosion, accidents like sinking, capsizing, derailment, collision, etc.
Institute Cargo clause B offers an additional layer of protection. Not only does it include all the risk covers provided under Clause C, but it also covers the shipment against events such as earthquake, volcanic eruption, and damage due to rainwater, seawater, river water, etc., and loss to package overboard or during loading and unloading.
Institute Cargo Clause A provides maximum coverage as it covers all risk of loss or damage to the goods. Apart from the risks covered under Clauses B and C, it also covers losses due to breakage, chipping, denting, bruising, theft, non-delivery, all water damage, etc.
Risks such as wars, strikes, riots, and civil commotions are not covered under the institute cargo clauses. However, the insurer may provide this cover on payment of additional marine insurance premium.
So in terms & conditions of marine insurance coverage, these three types of marine insurance clauses: Institute Cargo Clauses A, B, and C. Clause A provides maximum coverage, Clause C provides basic risk coverage.
What is not covered under Marine Insurance?
Difference between Fire Insurance & Marine Insurance
Fire insurance is an insurance that covers the risk of fire. The subject matter is any physical asset or property. The moral responsibility is an important condition here. There is no expected profit margin in terms of fire insurance. The insurable interest must be present before taking the policy and also at the time of loss.
Whereas, the Functions of Marine insurance is one that encompasses risks associated with the sea. The subject matter is the ship, freight or cargo. It does not consist of any clause related to the moral responsibility of the cargo owner or the ship. 10 to 15% profit margin is expected in terms of marine insurance. Also in marine insurance the insurable interest must be only at the time of loss.
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