Marine insurance
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Marine insurance provides coverage for losses incurred during maritime transport. There are several types of marine insurance policies including hull, cargo, freight, and liability insurance. Key aspects of marine insurance policies include indemnifying the assured for losses but not allowing them to profit, determining premium amounts based on risk assessments, and specifying covered risks and perils. Standard institute clauses are often used for hull and cargo insurance policies to clearly define coverage.
Marine insurance
- 2. • Marine insurance business means the business of effecting contracts of insurance, which may be legally insured in or relation to vessels, cargoes and freights, goods, merchandise and property of whatsoever description insured for any transit by land or water or air or all the three.
- 3. • A contract or policy of marine insurance is an arrangement whereby one person called insurer or underwriter, agrees, according to specific terms of contract, to indemnify another person, called assured, for the losses incurred in connection with property, such as ship, goods or other movables, in maritime transport.
- 4. • It is not intended that assured should make a profit from his loss but that he should not merely be in worse situation than he was before the loss occurred.
- 5. • Further, it is not practicable to expect the insurer to replace an object which is lost, nor it is reasonable to expect him to restore the damaged object to the whole sound object. As a compromise, any recompense must be of a monetary nature and this system of reimbursement is called “indemnity”.
- 6. • “Marine adventure” includes any adventure where any insurable property is exposed to maritime perils i.e. perils consequent to navigation of the sea. It also includes the earnings or acquisition of any freight, passage money, commission, profit or other pecuniary benefit, or the security for any advances, loans, or disbursements is endangered by the exposure of insurable property to maritime perils.
- 7. • Marine adventure also includes any liability to a third party may be incurred by the owner of, or other person interested in or responsible for, insurable property by reason of maritime perils.
- 8. • A contract of marine insurance may, by its express terms, or by usage of trade, be extended so as to protect the assured against losses on inland waters or on any land risk which may be incidental to any sea voyage.
- 9. • An insurer underwrites or subscribe to a risk in return for the payment of ‘premium’ by the assured. The premium is considered compensation for running risks of the insured property and is normally retained whether or not the insured property is lost or not
- 10. • The size of the premium depends upon the insurer’s estimation of degree of the risk that the insured property will incur a loss and on amount of indemnity he will have to pay.
- 11. • The word “risk” being in this context to refer to the risk of loss occurring in connection with insured property, and the risk of loss can include not only actual property but also financial losses, such as those resulting from the loss of freight, passage money,commission or profit as well as certain types of liabilities incurred to third parties.
- 12. • The specification of insurance contract usually stipulates certain limitations as to the type of occurrences that may cause losses for which the insurer will pay indemnity. Such occurrences are called “insured risks” or “insured perils”.
- 13. • The term “perils of the sea” refers only to accidents or causalities of the sea, and does not include the ordinary action of the winds and waves. • Besides, maritime perils include, fire, war perils, pirates, seizures and jettison, etc. • A marine insurance policy may specify that only certain maritime risks, or “perils of the sea”, are covered.
- 14. • Some of the important types of marine insurance are as follows: • Hull Insurance • Cargo Insurance • Freight Insurance • Liability Insurance
- 15. a) Marine hull insurance • This pertains to insurance of ocean going ships and other vessels. “Hull” refers to the body or frame of the ship. Hull insurance provides the cover for the hull and machinery as well as in respect of materials and outfit and stores and provisions for the officers and crew. • Hull policy consists of basic policy attached to Institute Clauses, which are drafted by the Institute of London Underwriters.
- 16. b) Marine cargo insurance • Cargo insurance covers the cargo or goods contained in the ship and the personal belongings of the crew and passengers. It provides cover for various transit perils in respect of goods and or merchandise in transit from one place to another by sea, air, road or registered post. Transit risks or perils are covered under marine insurance.
- 17. • Marine insurance plays a pivotal role in import, export and internal trade. Goods while in transit are liable to be lost or damaged through one or other of various perils from the time it leaves the warehouse of the supplier till it is received at the final warehouse of the consignee. The loss or damage suffered due to these perils is to be transferred to the insurer in lieu of the premium.
- 18. c) Freight insurance • Freight insurance provides protection against the loss of freight. In many cases, the owner of goods is bound to pay freight, under the terms of the contract, only when the goods are safely delivered at the port of destination. If the ship is lost on the way or the cargo is damaged or stolen, the shipping company loses the freight. Freight insurance is taken to guard against such risk.
- 19. d) Liability insurance • Liability insurance is one in which the insurer undertakes to indemnify against the loss which the insured may suffer on account of liability to a third party caused by collision of the ship and other similar hazards.
- 20. • Marine Insurance Policy : • Hull policy consists of basic policy attached to Institute Clauses, which are drafted by the Institute of London Underwriters. • A marine insurance policy is a document which embodies all the particulars and the terms and conditions for the construction of the policy. Contract must be embodied in policy.
- 21. • A contract of marine insurance shall not be admitted in evidence unless it is embodied in a marine policy in accordance with section 25 of the Marine Insurance Act.
- 22. • The policy must be signed by or on behalf of the insurer. It must contain the following: - the name of the assured; - the subject-matter insured and the risk insured against; - the voyage, or period of time, or both, as the case may be, by the insurance; - the sum or sums insured; - the name or names of the insurer or insurers.
- 23. • Types of marine policies • i) Voyage policy • When a marine insurance policy embodies the contract to insure the subject-matter at and from, or from one place to another or others, the policy is called a “voyage policy”. • In a voyage policy, the subject matter is insured for a particular voyage irrespective of the time involved in it. In this case the risk attaches only when the ship starts on the voyage.
- 24. • ii) Time policy • Time policy is an insurance policy embodying a contract in which the subject matter is insured for a definite period of time. • The ship may pursue any course it likes, the policy would cover all the risks from perils of the sea for the stated period of time.
- 25. • A time policy cannot be for a period exceeding one year because it will be invalid, but it may contain a ‘continuation clause’. The ‘continuation clause’ means that if the voyage is not completed within the specified period, the risk shall be covered until the voyage is completed, or till the arrival of the ship at the port of call.
- 26. • iii) Mixed policy • Mixed insurance policy is a combination of voyage and time policies and covers the risk during particular voyage for a specified period of time. A contract for both voyage and time may be included in the same policy.
- 27. • iv) Valued policy • A marine insurance policy may be either valued or unvalued. A valued policy is a policy which specifies the agreed value of the subject-matter insured between the insurer and the insured and it is specified in the policy itself. • Hull and goods policies are invariably valued policies.
- 28. • The value fixed by the policy is, as between the insurer and assured, conclusive of the insurable value of the subject intended to be insured, whether the loss be total or partial. • However, unless expressly stated, the value fixed by the policy is not conclusive for the purpose of determining whether there has been a constructive total loss.
- 29. • v) Un-valued policy • An unvalued marine insurance policy is a policy which does not specify the value of the subject-matter insured. • Subject to the limit of the sum assured, it leaves the value of the loss to be subsequently ascertained, in the manner explained in the policy itself.
- 30. • It means that the method of ascertaining the value of the loss has been agreed upon between the insured and insurer beforehand in case of an unvalued policy. • Unvalued policies are used in connection with freight insurance, presumably because the insurance value would doffer very little from the insured value if the latter were agreed.
- 31. • vi) Open Covers : • In order to arrange their marine insurance in advance and to be assured of cover at all times, and also to avoid the effect of the possibly fluctuating rates, it is the practice of regular importers and exporters to avail themselves of some kind of blanket insurance. • One way of achieving this is by means of “open covers”.
- 32. • An open cover is an agreement between the assured and his underwriters under which the former agrees to declare and latter to accept all shipments coming within the scope of the open cover during the period of time. • The open cover itself is simply an original slip with the disadvantage that like other slip, it is not legally enforceable and is binding in honour only.
- 33. • Whenever a shipment is made the assured notifies and gives the details to the underwriters who than issues a stamped policy. • Although, the underwriters’ aggregate liability during the period of cover is limited, a stipulation is invariably made that no shipment shall exceed a specified sum in any one vessel.
- 34. • vii) Floating policy • This provides another method of obtaining a long term contract for goods insurance , which may be used instead of an open cover. • Such policy has the advantage of being a valid marine policy.
- 35. • A floating policy describes the insurance contract in general terms, and leaves the name or names of the ship or ships and other particulars to be defined by subsequent declaration. • The subsequent declaration or declarations may be made by endorsement on the policy, or in other customary manner.
- 36. • Unless the policy otherwise provides, the declarations must be made in the order of dispatch or shipment. • They must, in the case of goods, comprise all consignments within the terms of the policy, and the value of the goods or other property must be honestly stated.
- 37. • An omission or erroneous declaration may be rectified even after loss or arrival, provided the omission or declaration was made in good faith.
- 38. • If a declaration of value is not made until after notice of loss or arrival, the policy is generally treated as an unvalued policy as regards the subject-matter of that declaration. Such policies are very useful to merchants who regularly despatch goods through ships.
- 39. • London Market : • The term ‘London Market’ is commonly used to refer to all the international and United Kingdom insurance and reinsurance practitioners based in London. • The market includes both Lloyd’s insurers, represented by the Lloyd’s Market Association (LMA), and individual companies represented by the International Underwriting Association of London (IUA).
- 40. • The IUA was formed in 1998 through the merger of the London International Insurance and Reinsurance Market Association and the Institute of London Underwriters (ILU). • The IUA is the world’s largest representative organization for international and wholesale insurance and reinsurance companies. • The IUA protects and strengthens the business environment for its member companies operating in or through London.
- 41. • The London Market is the only place in the world where all 20 of the world’s largest insurers and reinsurers are represented. Gross premiums on the market were estimated at £22 billion in 2004. • Between 10 percent and 15 percent of the world’s large industrial insurance is placed on the market and, in certain key classes of business, such as marine, it is reported to be much higher.
- 42. • INSTITUTE CLAUSES • In the 19th century, Lloyd’s and the ILU developed standardized clauses for the use of marine insurance. These have been maintained ever since and are known as institute clauses. • The institute clauses are made for marine hull, including machinery, and cargo insurance.
- 43. • HULL • The London market Joint Hull Committee (Lloyd’s Underwriters’ Association and IUA), in consultation with ship owning associations, insurers, average adjusters and brokers, developed International Hull Clauses (IHC), a new set of hull clauses. • The IHC, which became effective on 1 November 2002, are not a major rewrite of the 1983 and 1995 Institute Time Clauses (ITC).
- 44. • Rather, ITC have been updated to reflect current market practices. • The International Hull Clauses are divided into three parts: - part one contains the principal insuring conditions;
- 45. - part two presents a range of additional clauses that were frequently required by assureds and added to ITC separately. - part three contains provisions for claims handling and sets out the rights and responsibilities of underwriters and assureds.
- 46. • The Institute Time Clauses, which afford coverage for a specific period, (usually 12 months) are the most important clauses in marine hull insurance policies. • Depending on the nature and degree of risks, there are three categories of ITC.
- 47. • (1) Institute Time Clauses (Hull) that provides maximum coverage (i.e. perils and other losses and expenses covered); (2) Institute Time Clauses (free partial average) that provides similar coverage to that of the Hull’s clauses, but excludes coverage on machinery damages, and (3) Institute Time Clauses (total loss only) that provides coverage only in the event of a total loss. This is usually extended to old vessels.
- 48. • CARGO • The Institute Cargo Clauses (ICC) define the risks covered, circumstances excluded, duration or validity of coverage and conditions of claims. • Coverage is provided on an A, B, or C basis, A having the widest coverage and C the most restricted.