Marine insurance

The subject of Marine Insurance is very wide and encompassing, which is why there is a definite categorization of various types of marine insurance and different types of marine insurance policies. As per the needs, requirements and specifications of the transporter, an appropriate type or types of marine insurance can be narrowed down and selected to be put into operation.

Why Marine Insurance?

Any insurance is designed to manage risks in the event of unfortunate incidents like accidents, damage to the property and environment or loss of life. When it comes to Ships, the stakes 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.

Related Reading: What is marine insurance?

To ensure all the risk can be managed without the lack of monetary funds when needed the most, different Maritime insurances are made compulsory for ships and ship owners to take. Only post that, the ISM can be implemented on ships.

The types of marine insurance available for the benefit of a client are many and all of them are feasible in their own way. Depending on the nature and scope of a client’s business, he can opt for the best marine insurance plans and enjoy the advantage of having marine insurance.

Representation Image — Photograph by Keegan Welken
Representation Image – Photograph by Keegan Welken

There are several marine insurance companies providing types of insurance for ship owners, cargo owners and charterers.

The different types of marine insurance can be elaborated as follows:

Hull Insurance: Hull insurance mainly caters to the torso and hull of the vessel along with all the articles and pieces of furniture on the ship. This type of marine insurance is mostly taken out by the owner of the ship to avoid any loss to the vessel in case of any mishaps occurring.

Related Reading: Hull of a ship: Understanding Design And Characteristics

Machinery Insurance: All the essential machinery are covered under this insurance and in case of any operational damages, claims can be compensated (post survey and approval by the surveyor).

The above two insurances also come as one under Hull & Machinery (H&M) Insurance. The H&M insurance can also be extended to cover war risk covers and strike cover (strike in port may lead to delay and increase in costs)

Related Reading: What is marine underwriting?

Protection & Indemnity (P&I) Insurance: This insurance is provided by the P&I club, which is ship owners mutual insurance covering the liabilities to the third party and risks which are not covered elsewhere in standard H & M and other policies.

Protection: Risks which are connected with ownership of the vessel. E.g. Crew related claims.

Indemnity: Risks which are related to the hiring of the ship. E.g. Cargo-related claims.

Related Reading: How P & I Clubs Work

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.

Related Reading: 10 Important things to do during ship collision accident

Freight, Demurrage and Defense (FD&D) Insurance: Often referred to as “FD&D” or simply “Defense,” this insurance provides claims for handling assistance and legal costs for a wide range of disputes which are not covered under H&M or P&I insurance.

Freight Insurance: Freight insurance offers and provides protection to merchant vessels’ corporations which stand a chance of losing money in the form of freight in case the cargo is lost due to the ship meeting with an accident. This type of marine insurance solves the problem of companies losing money because of a few unprecedented events and accidents occurring.

Marine Cargo Insurance: Cargo insurance caters specifically to the marine cargo carried by ship and also pertains to the belongings of a ship’s voyages. It protects the cargo owner against damage or loss of cargo due to ship accident or due to delay in the voyage or unloading. Marine cargo insurance has third-party liability covering the damage to the port, ship or other transport forms (rail or truck) resulted from the dangerous cargo carried by them

Related Reading: What is marine cargo insurance

The time limit for claims that are right to compensation may vary depending upon the content of the policy, and an action is to be brought within that period from the date when the damage occurred.

For Newly built ships, the shipowner is under contract with the shipyard to take out insurance cover for a period (usually one year) from the date of yard delivery.
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 so as to provide the clients with flexibility while choosing a marine insurance policy. The availability of a wide array of marine insurance policies gives a client a wide arena to choose from, thus enabling him to get the best deal for his ship and cargo. The different types of marine insurance policies are detailed below:

Voyage Policy: A voyage policy is that kind of marine insurance policy which is valid for a particular voyage.
Time Policy: A marine insurance policy which is valid for a specified time period – generally valid for a year – is classified as a time policy.
Mixed Policy: A marine insurance policy which offers a client the benefit of both time and voyage policy is recognized 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 beforehand. Therefore reimbursement is done only after the loss of the cargo and consignment is inspected and valued.
Valued Policy: A valued marine insurance policy is the opposite of an open marine insurance policy. In this type of policy, the value of the cargo and consignment is ascertained and is mentioned in the policy document beforehand thus making clear about the value of the reimbursements in case of any loss to the cargo and consignment.
Port Risk 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.
Wager Policy: A wager policy is one where there are no fixed terms for reimbursements mentioned. If the insurance company finds the damages worth the claim then the reimbursements are provided, else there is no compensation offered. Also, it has to be noted that a wager policy is not a written insurance policy and as such is not valid in a court of law.
Floating Policy: A marine insurance policy where only the amount of claim is specified and all other details are omitted till the time the ship embarks on its journey, is known as floating policy. For clients who undertake frequent trips of cargo transportation through waters, this is the most ideal and feasible marine insurance policy.
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 of the insured.
Related Reading: Marine insurance for piracy attacks

Fleet Policy: In this policy, several ships belonging to one owner are insured under the same policy.
Block Policy: This policy also comes under maritime insurance to protects the cargo owner against damage or loss of cargo in all modes of transport through which his/her cargo is carried i.e. covering all the risks of rail, road, and sea transport.
Marine Insurance is an area which involves a lot of thought, straightforward and complex dealings in order to achieve the common ground of payment and receiving. But as much as complex the field is, it is nonetheless interesting and intriguing because it caters to a lot of people and offers a wide range of services and policies to facilitate easy and uncomplicated business transactions. Therefore, in the interest of the clients and the insurance providers, it is beneficial and relevant to have the right kind of marine insurance. It resolves problems not just in the short run, but also in the long run as well.

Disclaimer: The authors’ views expressed in this article do not necessarily reflect the views of Marine Insight. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Marine Insight do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader.
A simple definition of the word insurance would be “Protection against future loss.” Marine insurance is another variant of the general term ‘insurance’ and as the name suggests is provided to ships, boats and most importantly, the cargo that is carried in them.

Marine insurance is very important because through marine insurance, ship owners and transporters can be sure of claiming damages especially considering the mode of transportation used. Of the four modes of transport – road, rail, air and water – it is the latter most which causes a lot of worry to the transporters not only because there are natural occurrences which have the potential to harm the cargo and the vessel but also other incidents and attributes which could cause a huge loss in the financial casket of the transporter and the shipping corporation.

Incidents like piracy and possibilities like cross-border shoot-outs also pose a major threat when it comes to water transportation and therefore in order to avoid any loss because of such events and happenings, in the interest of the corporation and the transporter, it is always beneficial to have a back-up like a marine insurance.

container lashing failure

Another important aspect of having marine insurance is that a transporter can choose the insurance plan as per the size of his ship, the routes that are taken by his ship to transport the cargo and many such minor points which could go a great length in affecting the transporter majorly.

Also, since there are various plans and policies which indicate about covering not just the cargo but also the vessel, the transporter can choose and avail of the best policy that suits his business the best.

However, as much as marine insurance provides fair claim to transporters and corporations, it has to be understood that marine insurance is also one of the trickiest and strictest insurance areas right from the time the concept of marine insurance commenced – i.e. from the 17th century onwards.

While dealing with the scope and range of marine insurance, it is very important that a ship’s captain follows a rigid protocol in terms of the route taken and the time taken for the cargo and the vessel to reach the intended port of destination. Because if there is any discrepancy or violation in terms of the route taken, i.e. if the captain varies or digresses in his route from the one originally intended as a part of the ship’s course, then even if there is any mishap occurring to the vessel or the cargo, the insurance claim will be rejected completely without any possibility of the claim being reimbursed to the claimant at some future date after a few tough negotiations.

Therefore it becomes very important that a ship’s captain takes due consideration about the prescribed routes so as to avoid a failed insurance contract because of an unplanned loss due to the deviation in the route. This would bring about not just caution on the part of the captain but would also reduce the possibility of losing important insurance claims because of inadvertence and negligence.

Marine insurance is a safe haven for shipping corporations and transporters because it helps to reduce the aspect of financial loss due to loss of important cargo. Also, it helps to bring about to the transporting companies and to the receiving parties, the duty, dedication and the straightforwardness of the insurance companies.
The nature of the risks associated with the movement of goods using international transportation is such that a special kind of insurance is required. This type of insurance is called marine insurance, also known as cargo insurance. The term »marine» can be misleading as it is not only applicable for use in sea transport, but also for all the other means of international transportation, namely, air, road or rail. Your customers» goods, while in-transit to an international destination, are exposed to all kinds of perils such as fire, pilferage, theft, sinking of the vessel, aircraft accident, explosions, war, strikes, weather conditions and damage from poor handling.

The need for marine insurance is highlighted by the fact that you have very little control over the safety of the cargo once it is handed over to the carrier for shipment. Even if the carrier can be held liable for the safety of the goods, rates of compensation may cover only a portion of the value of the goods.

For example, the standard airline liability rate as indicated on the back of the international air waybill is 17 SDR (USD 20.00) per kg. On this basis, carrier compensation for the loss of a piece of cargo of 100 kgs might be USD 2000 whereas the value of the consignment could be well in excess of that figure, hence the need for marine insurance. It is therefore strongly recommended that forwarders offer marine insurance to their clients as a matter of company policy.

When should you take out marine insurance?

Parties to a marine insurance contract must have or expect to have at some future date, an insurable interest in the goods. Any party who stands to lose or gain from the safe arrival of the goods is said to have an insurable interest and can thus claim against an existing insurance policy.

The lncoterm relative to the consignment will determine at what stage the risk of loss or damage to the goods changes hands in the transport chain.

The forwarder should only arrange insurance at the express written request of the customer. The function of the forwarder is limited to the procurement of suitable marine insurance. If the instructions are simply to arrange for insurance, the forwarder can take out transport insurance against all risks. If this is not possible, or if the desired extent of cover is not clear, you should clarify the matter with the customer.

All risks is the common form of cargo insurance appropriate for most shipments handled by forwarders.

Can you take out insurance for one consignment?

Marine insurance policies can be designed for a single shipment, or the exporter or forwarder can choose to take out a policy that will cover a number of shipments over a period of time — normally known as an open policy.

Unless otherwise agreed in writing a forwarder is not under any obligation to effect a separate insurance on each consignment, but may declare it on an open or general policy, which may be held with an insurance company. The efficiency of an open cargo policy far outweighs any supposed disadvantages.

BIFA Standard Conditions

Clause 11(A). No insurance will be effected except upon express instructions given in writing by the Customer and accepted in writing by the Company,and all Insurances effected by the Company are subject to the usual exceptions and conditions of the Policies of the Insurance Company or Underwriter taking the risk. Unless otherwise agreed in writing the Company shall not be under any obligation to effect a separate Insurance on each consignment but may declare it on any open or general Policy held by the Company.

Types of Marine Insurance

The London Institute of Underwriters have defined marine insurance cover under standard sets of clauses usually referred to as the Institute Cargo Clauses A, Air, B and C. These sets of clauses are widely recognised and used by most underwriters world-wide:

Clause A or «all risks» as it is commonly known, covers all physical loss-or damage to the cargo from any external cause, general average and salvage charges. You should make customers aware of the exclusions for which they will not be covered. These are listed in the next section.
Clause Air is the same as «all risks» in that it covers all physical loss or damage to the cargo from any external cause. The clause specifies the aircraft as the carrier and the same exclusions would apply as with Clause A.
Clause B and Clause C provide cover against nominated perils and should only be used for certain commodities making use of bulk shipments.
There are also clauses that address specific concerns such as war and strikes. Should the shipper wish to protect himself against loss or damage to his cargo resulting from war or strikes, the war or strike clause must be included in his policy.

The A, B and C clauses are the standard forms of cover provided for goods shipped under deck, but are frequently unsuited for special cargoes or special circumstances. The insurer (insurance company) needs to be aware of this and make the necessary adjustments particularly where, for example, cargo is being transported on deck. An agent or broker will normally tailor a marine insurance policy to suit the circumstances in question, and adjust the insurance rates accordingly.

Exclusions in Marine Insurance

It is important that the insured is aware of the exclusions applicable to «all risks» cover. The most common are loss, damage or expense:

attributable to wilful misconduct of the insured
caused by insufficiency or unsuitability of packing or preparation of the cargo
as a result of ordinary leakage and wastage
arising from the insolvency or financial default of the owners, charterers or operators of the vessel
caused by inherent vice of the cargo (e.g. the innate tendency of a product to deteriorate over time. For example, fruit will go rotten)
caused by delay
resulting from strikes and labour disturbances (covered by strike clause)
arising from un-seaworthiness of the vessel where the insured is privy to the defects at the time of loading cargo
An important point to note when taking out marine insurance is that the onus is on the insured to ensure adequate packaging and marking. In the event of loss or damage to cargo attributable to inadequate packaging or marking, the insurer (the insurance company) will disallow any claim made.

General Average

General average is an interesting concept in sea freight as it implies that the owner of the goods being shipped accepts a measure of responsibility for the well being of the ship and all of its cargo. In short, the implications of general average are that should the captain of the ship have to take certain actions at sea to save the ship and its cargo, e.g. he might have to jettison some of the cargo overboard to lighten the load,a general average cost would apply. This means that the cargo owner would have to pay a proportion of the cost of the loss incurred by the cargo owner whose cargo was jettisoned overboard to save the ship. All three clauses (A, B and C) cover this eventuality.

Value for insurance purposes and cost of insurance

The minimum insurance value of cargo is generally determined as follows:

Cost of the goods
Plus freight and other associated charges (e.g. DDP shipments)
Plus 10% (to cover claims administration)
The insurance premium is calculated using a % factor determined by the insurer based on specific information such as the type of transport, type of product, the track record of the insured and any other circumstances affecting the level of risk involved. Sea freight cargo insurance is usually more expensive than airfreight insurance because of the greater risks involved. An insurance premium could be in the region of 0.5% of the insurance value of the cargo.

Providing Marine Insurance

The customer (i.e. the seller or the buyer) has the option of approaching the marine insurance company directly or through a broker to insure cargo. Alternatively, the forwarder can arrange for marine insurance on behalf of their customer, and forwarders selling insurance in this way create an income opportunity, receiving commission from insurance placed. In addition, it is a way of protecting the excess on the liability cover.

If not carried out correctly, the placing of insurance by the forwarder can result in serious financial loss, hence the requirement for the customer»s instructions to be received in writing.

BIFA Standard Trading Conditions

Clause 11(B). Insofar as the Company agrees to effect Insurance, the Company acts solely as Agent for the Customer. The limits of liability under Clause 26(A)(ii) of these Conditions shall not apply to the Company»s obligations under Clauses 11.

If a forwarder fails to insure goods as instructed, the customer may be able to recover the amount that the insurance would have paid for the loss or damage. The forwarder may not be able to limit its liability to the limitation appropriate for the loss of the goods. To avoid catastrophic damage claims, some standard trading conditions include a limitation provision that applies to general commercial claims, such as a failure to insure.

Insurance of warehoused goods

Unless otherwise instructed in writing by the customer, the freight forwarder should carry insurance for the risks of fire, water or theft (through burglary) in his own name and for account of the customer based upon the invoice value at the time of storage.

Many customers have an open cargo policy that covers goods wherever located, including those held awaiting distribution. On the forwarder side, most forwarders have an open policy that does not cover goods after the conclusion of transport (beyond a reasonable waiting period). Goods that are being stored are therefore not covered under the type of policy a forwarder will generally arrange.
Consequential Loss

As more forwarders enter into »partnership» arrangements with customers they will come under more pressure to assume some responsibility for the consequential losses arising from delays and breakages.

BIFA Standard Conditions

Clause 27 (A). Any claim by the Customer against the Company arising in respect of any service provided for the Customer or which the Company has undertaken to provide shall be made in writing and notified to the Company within 14 days of the date upon which the Customer became or ought reasonably to have become aware of any event or occurrence alleged to give rise to such claim and any claim not made and notified as aforesaid shall be deemed to be waived and absolutely barred except where the Customer can show that it was impossible for him to comply with this Time Limit and that he has made the claim as soon as it was reasonably possible for him to do so.

BIFA Standard Conditions
Clause 26 (C). Save in respect of such loss or damage as is referred to at Sub-Clause (B) and subject to Clause 2(B) above and Sub-Clause (D) below, the Company shall not in any circumstances whatsoever be liable for indirect or consequential loss such as (but not limited to) loss of profit, loss of market or the consequences of delay or deviation however caused.

Forwarders generally consider that they cannot be responsible if goods are delayed in arriving at their destination. This exemption can be stated in legally correct terms -the forwarder is not liable unless its negligence has contributed to the delay. However, carriers are exempt under general legal principles from consequential loss unless a shipper takes extra steps to warn the carrier of the consequences that follow from a failure to deliver.

Claims Processes

Claims may be unsuccessful because of a failure to recognise that prompt action is necessary. It is important to remember that often the most crucial period in the marine claim process is the first few moments immediately subsequent to initial loss/damage discovery.

In the event of loss or damage being discovered, if you are unsure of the best action to take, and before you sign any delivery document to acknowledge receipt of the goods, there are three things you must do immediately.

1. Make every effort to minimise the loss and/or prevent further loss. This could include, for example:

separating damaged cargo from sound cargo
spreading out damp or wetted items to aid drying
temporarily sealing leaking drums/carboys
re-banding or re-packaging
Reasonable expenses incurred in taking such steps are reimbursable in addition to any payment of the claim itself. It is incumbent upon the insured/claimant to act responsibly in minimising all damages.

2. Notify your insurance agent or broker so that, if required by underwriters, a survey of the damage can be arranged promptly. Until specifically advised by your insurance agent or broker that a survey will not be necessary, you should assume that a loss investigation survey will be carried out.

Wherever practicable, the damaged cargo and all original packing materials should be retained in the condition received until after the survey, unless further damage will result by doing so.

Once a survey is arranged, the carrier or his agent should be notified of the time and place of the survey so that they may be represented. The carrier may often opt not to attend the survey. However, he must be given the opportunity to do so.

3. Hold the carrier responsible. It is essential that:

If any loss or damage is discovered before the departure of the delivery transport, then any delivery documents presented for signature as proof of delivery1acknowledgement of receipt, must be endorsed with a statement identifying loss or damage. This statement should be brief, and unless you are confident that the full extent of damage is known, no specific details regarding such extent should be entered. A suitable suffix to any such endorsement is «Full report and claim to follow».
A claim is made in writing against the carrier (inland or ocean/air) as soon as the loss is known. This can be in any form, but must include:
i. the Bill of Lading and/or Air Waybill and/or Delivery Note number

ii. the name of the carrying vessel and/or vehicle registration number

iii. a description of the loss or damage

iv. a statement holding the carrier responsible for the loss or damage.

At a later stage, once the full extent of loss and corresponding claim amount has been clearly ascertained, a second letter should be forwarded to the carrier, identifying these points. A number of documents are required to support a marine insurance cargo claim.

The extent of documentation required depends on the exact circumstances and conditions of the claim in question; however, there are a number of standard documents, which are normally required to substantiate a cargo claim and these may include:

1. The document issued showing the amount of insurance placed and the coverage provided:

For an export shipment, this would be the original copy of the Special Marine Policy or Certificate of Insurance
For imports, this would probably be a copy of the marine insurance declaration or bordereau (list of cargo carried on a road vehicle in international transport).
2. For ocean freight a negotiable copy of the primary transit document, i.e. the Bill of Lading.

For an air shipment the applicable Master Air Waybill/Air Waybill/House Waybill
For a continental road shipment, a CMR note.
3. Final delivery or consignment note.

For domestic (UK-UK) transits, the delivery note is likely to represent the primary transit document
In respect of imports or exports, a delivery note will normally be issued by the final road carrier/forwarder (in addition to the primary transit document).
4. Original shipper»s invoice.

5. The shipper»s letter of instructions

6. Packing list, weight certificates or other evidence of the nature and condition of the goods at the time of shipment.

7. Any damage/discrepancy/handling report from any intermediary party.

8. The survey report, if an independent surveyor was called in to represent your interest.

9. Copy of claim on carrier and (if available)the carrier»s reply.

What can be done to expedite the claim process?

1. Always liaise/correspond via your appointed intermediary/agent/broker. This is usually your Insurance Broker.

2. Ask claimant to lodge formal written claim. An example document can be obtained from BIFA.

3. Make immediate investigation with all parties involved in the transport chain.

4. Notify all parties involved of the action being taken, and, depending on circumstances, this may include the shipper, the consignee, the agent at destination/origin station, the insurers, any carrier and/or transit shed operators involved, hauliers involved, and in certain circumstances, the police authorities.

5. Always quote underwriters» and brokers» claims reference numbers when making any form of communication.

6. Forward additional or supplementary information1documentationto your broker as soon as it becomes available.

7. Set up your own claim file, so that if necessary, more than one person can respond to any supplementary advices/queries that underwriters may have.

What else can be done to substantiate the claim?

1. If any employees/personnel, attendant upon delivery or when damage was discovered, made any significant observations, then it may be useful to ask them to make a short written statement of such observations.

2. Such statements are particularly useful in cases where cargo is dropped or poorly handled by forklifts, tail lifts and other mechanical handling equipment, or when cargo arrives poorly stowed and/or secured.

3. The ultimate enhancement of the written statement, as identified above, is the provision of photographic evidence. Although we cannot expect every receiver of goods to constantly retain a camera on the premises, specifically for use in the event of cargo being received in a damaged condition, the value of such an option cannot be too highly stressed.