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Marine Insurance

According to Wikipedia, Marine insurance covers the loss or damage of ships, cargo, terminals, and any transport or cargo by which the property is transferred, acquired, or held between the points of origin and the final destination. Cargo insurance is the sub-branch of marine insurance, though Marine insurance also includes Onshore and Offshore exposed property, Hull, Marine Casualty, and Marine Liability. When goods are transported by mail or courier, shipping insurance is used instead. A contract of marine insurance is an agreement whereby the insurer undertakes to indemnify the insured, in the manner and to the extent thereby agreed, against transit losses, that is to say losses incidental to transit.

In India the two most popular lines of Marine business are Marine Cargo and Marine Hull Insurance. Marine Cargo constitutes 77% of the overall GPW for the India Insurance industry in 2017-18. The overall GPW for the Marine line of business has been hovering Rs.2,900 crores for the past few years even though the risks and shipments have been increasing with the advent and aggressive growth of E Commerce etc. This is due to the falling premiums despite adverse claims ratios.
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So what is the Need for Marine Insurance?

Every country depends on Trade and Commerce for their survival, growth, and well being. For this trade, goods and other commodities have to continuously move from one place to another by various means of transportation including Air, Rail, Road and Ship. For a manufacturing company, raw materials are procured from suppliers from different corners of India or the world, and transported to the manufacturing facility…after they are manufactured / processed, they are moved again to the sellers in different locations… This movement of goods gives rise to the need for Marine insurance, which covers the duration of the transit from the time it moves out of the custody of the supplier to manufacturer to seller to the buyer as the ownership of the property itself changes hands. Such kind of insurance is known as marine cargo insurance. Many of these movements are done using ships/large vessels. The marine hull insurance covers damage or physical loss to your vessel, its equipment, engines and machinery.

Marine insurance dates back to the middle Ages in Europe and is considered to be the oldest form of Insurance. Generally, it is applicable to the risk associated with the movement of goods between ports. Much of marine insurance law and its governing custom were developed there by seafaring men and merchants engaged in foreign trade, who gathered to arrange “their mutual contracts of insurance against the sea”. The person seeking insurance would pass around a slip showing a written description of the vessel and its cargo, the name of the master and the character of his crew and the voyage considered. When the total amount of insurance sought by the owner of the ship was thus underwritten, the contract was complete, hence the term “underwriters” now applied to insurers.
  • Insurance of goods in transit
  • From one place to another
  • By any means of conveyance (Road, Rail, Air, Sea, Courier)
  • Under a Contract of Affreightment
Buyers, Sellers, Import/Export merchants, Buying Agents, Contractors and Banks etc. Marine Cargo Policies cover the interest in the cargo and also extend to cover the interests of any third party who has acquired interest upon transfer of ownership, as determined by the Terms of Sale.
Cargo can be damaged on exposure to a wide variety of risks, including an accident of the vehicle carrying the cargo, damage due to jolts, jerks etc.
Loss or damage due to Inherent Vice , Delay, Insufficiency of packing, loss or damage due to financial default or insolvency of the ship owner etc.
In nutshell, the rates of premium depends upon :
  1. Nature of commodity
  2. Method of packing.
  3. The Vessel (age / owner) / operator)
  4. Type of insurance policy (FOB, C&F, FOR, CIF).
  • Marine Insurance Specific Policy
    • The Marine Specific policy insures cargo against risks involved in a specific voyage. Normally taken for single transits.
  • Marine Insurance Open Policy
    • Automatic insurance protection for a specific period of time (usually one year).
    • Good insured and premiums paid based on declaration of actual values of shipments/dispatches by insured
    • Certificates are issued for individual shipments/dispatches
  • Sales Turnover Policy (STOP)
    • Basically an Open Policy in the real sense of the term. The premium for the policy is charged only on the sales turnover as declared by the insured on a periodic basis.
The normal exclusions under a standard marine policy are:
  • Loss caused by Willful/Deceitful misconduct of the assured.
  • Ordinary leakage, ordinary losses in weight or volume or ordinary wear and tear.
  • Loss caused by inherent characteristics or nature of the subject matter. Eg; perishable commodities like fruits, vegetables, etc. may deteriorate without any accidental cause.
  • Loss caused by delay, even though the delay be caused by insured risk.
  • Deliberate damage by wrongful act of any person or malicious damage.
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