Marine Insurance

Marine Insurance refers to a type of insurance that provides policyholders with coverage for damages or losses related to goods on terminals, ships, or cargo on land or water during transit. Such an insurance policy serves as an added layer of financial protection for companies engaging in international trade. 

This type of insurance typically covers malicious damage, mishandling, theft, etc. Moreover, common causes of damage or losses can be hijacks, explosions, collisions, fires, and overturns. Note that one can customize the coverage of marine insurance policies based on their requirements. Also, this type of insurance can be of different types, such as freight, liability, and cargo insurance. 

• The marine insurance definition refers to a kind of insurance policy that reimburses policyholders when any damage or loss of the insured cargo occurs during transportation. This insurance helps ensure that businesses recover from unexpected losses and continue carrying out their daily activities.  
• Hull, cargo, and freight are some of the different types of this insurance. Companies must opt for the type that is best suited to their requirements. 
• There are some noteworthy marine insurance benefits. For example, it provides policyholders with flexible coverage options. Moreover, it encourages global trade and commerce. 

The marine insurance definition refers to it as insurance policies providing financial protection against potential uncertainties and risks associated with maritime and shipping activities. Its main purpose is to offer indemnity or monetary compensation to the insured organization if a covered damage or loss materializes. This kind of insurance is necessary for various import and export trade proceedings. Any one of these three parties must insure the goods:

• Importer 
• Exporter 
• Forwarding agent 

When a company purchases such an insurance policy, it transfers the liabilities associated with the goods or products to the insurer. The policy restricts the company’s legal liability concerning the handling of the shipments or goods transported. 

In the event of damages or losses, the policyholder or shipper can initiate the claim filing process. As part of the process, the insured needs to submit documents indicating the extent of losses or damages, for example, bills of lading, cargo receipts, etc. 

After the insurer investigates the insured’s claim, it computes the compensation that the latter should receive. Note that the calculation takes into account multiple factors, like lading bills and cargo receipts. Post-calculation, the insurer disburses the overall settlement amount to the insured.

The cost or premium of any marine insurance plan depends on multiple factors, such as the following: 

• Goods’ value 
• The selected route 
• Cargo’s fitness
• Insurer’s valuation 
• Cargo’s nature 
• Claim history 
• Policy terms and conditions 
• Risk management strategy 
• Natural calamities

Hence, as one can note, insurance providers consider various parameters to figure out the premium rates on the basis of the risk factor. That said, individuals must remember that the parameters considered may vary across different insurers.

In the case of this insurance, coverage is available for the following:  

• Losses arising due to unloading or loading of cargo 
• Unforeseen administrative expenses
• Cargo damage owing to fire, sinking, misplacement, fire, or explosion
• Non-delivery or damages concerning the cargo because of piracy attacks, accidents, crashes, overturning, derailment, collisions, etc.  
• Losses incurred because of any natural calamity, for example, an earthquake, flood, etc.
• Any loss or damage to the cargo because of the collapse of a bridge
• Losses or damages resulting from jettison
• Losses arising because of delivering the cargo’s goods at another location
• Damages or losses arising due to the vessel or ship colliding with any structure or animal

Let us look at the different kinds of such an insurance policy.

• Freight Insurance: It offers coverage for freight-related losses or damages. In other words, when a shipping company purchases this policy. It can get financial protection against freight-related damages or losses during transit.  
• Liability Insurance: When at sea, a ship is exposed to risks like piracy attack, collision, or crash.  Crew members’ lives and the cargo also remain at risk. This type of insurance provides coverage to ship owners if they incur damages or losses because of such events that they cannot control. 
• Cargo Insurance: Such insurance offers coverage for losses or damages with regard to the cargo during transportation. The coverage also handles the damages resulting from ship accidents or unloading delays. This type of insurance is suitable for a heavy cargo shipment, for example, a tanker, as it offers financial protection against any damage to the entire ship. 
• Hull Insurance: This type of policy covers losses or damages related to the vessel or ship, including machinery, equipment, and other parts. Typically, ship owners purchase this type of insurance. 

Let us look at a few maritime insurance examples to understand the concept better.

Example #1

Suppose Company ABC cracked a significant export deal. Per the requirement, the organization had to ship goods worth $100,000 to another company in a different country. Before sending the goods, ABC purchased a marine insurance policy that would cover whatever losses or damages that may arise when in transit. During transportation, the ship carrying all the goods collided with an iceberg and sank. 

Company ABC filed a claim, formally requesting the insurance company to provide compensation for the loss. After conducting a thorough investigation, the insurer settled the claim by providing $100,000. 

Example #2

According to Marcus Baker, the global head of cargo, logistics, and marine at Marsh, a New York, United States-based company, some marine insurance providers do not want to provide coverage for British, Israeli, and American vessels against war-related risks in the crucial commercial shipping corridor via the Red Sea because of the ongoing Houthi rebels’ attacks. Although not every insurance provider is imposing restrictions, it is clear that the insurance market is tightening, and the rates are likely to keep rising. 

Moreover, he said that the increase in war-risk rates was a problem as the Red Sea is an essential trade route linking with the Suez Canal. After all, the seal-level waterway accounts for 30% of the international container shipping volumes in addition to 10%-15% of global trade. 

Shippers are forced to reroute the vessels because of the deteriorating security, which would result in significantly higher turnaround time and costs. In this case, there remains a risk that the jump in insurance and shipping costs could lead to a surge in consumer prices, cause supply chain bottlenecks, and unwind progress on inflation. That said, per Moody’s Analytics chief economist, the Red Sea attacks will likely have a restricted effect on the economy and global inflation.

Usually, marine insurance policies do not provide coverage for the following: 

• Loss or damage caused because the container was not in the right condition to carry the goods 
• Any damage or loss due to the policyholder’s intentional action
• Loss or damages caused by inherent vice 
• Damages or losses caused because of oversized goods that the cargo does not have adequate capacity to carry 
• Damage or losses resulting from temperature-sensitive goods
• Any loss or damage resulting from goods’ regular wear and tear 
• Cargo-related losses or damages that may arise due to delay
• Losses or damages caused because of nuclear fission or radioactivity during transportation. 
• Any loss or damage resulting from a war or the risk of a war 
• Damages or losses resulting from improper or poor packaging 

Note that the list of exclusions is not the same across the insurance industry. Some insurance providers may offer coverage for any of the above damages or losses. Hence, people must thoroughly go through the terms and conditions of an insurance policy before purchasing it. 

Let us look at the benefits and losses associated with such insurance policies.

Advantages 

• It provides flexible options concerning coverage; businesses can purchase the coverage on a yearly or a per-trip basis. 
• This type of insurance policy provides coverage for losses arising because of an extensive range of factors.  
• This insurance offers financial protection against damages or losses arising when transportation takes place across international borders. This encourages companies to engage in international trade without any worries. 
• Another marine insurance benefit is that It helps businesses manage and reduce the risk of incurring financial losses for their goods in transit.   

Disadvantages

• This insurance can be costly owing to the quantity of goods and the associated hazards. 
• In the case of personal interference, the payment of the claim does not take place. 
• Clients of a business may not work for an organization if the latter does not opt for this type of insurance. 

This article has been a guide to what is Marine Insurance. Here, we explain its types, examples, cost, coverage, exclusions, advantages, & disadvantages. You may also find some useful articles here –

• Long-Term Care Insurance
• Crop Insurance
• Parametric Insurance