Marine insurance, types and the different marine insurance policies

Marine insurance, types and the different marine insurance policies

Marine insurance as an aspect of the insurance business has to do with policies covering goods or persons or property transported by sea.

Broadly, marine insurance is defined as insurance that provides coverage for property on transit by means of water transportation, offshore installations and valuables as well as liabilities with marine risks.

Historically, marine insurance is the earliest form of commercial insurance. It was first practiced by international business men known as LOMBARDS of Italy in about 14-15 century during their business sojourn to United Kingdom.

This were merchants and not insurance specialists or experts who at instance of strengthening their mutual assistance decided that they should be meeting at a more convenient place which was then Edward Lloyd’s Coffeehouse in UK to discuss and share the risk of adventure.

The Lloyd’s which open in 1860 and later became incorporated is today the greatest center for marine business. In UK most marine insurance were being provided by individuals that were not full time marine insurers.

However, the first marine insurance was being founded in Paris, France in 1668. But with increase commercial port in London, most marine activities shifted there and so the practioners in that sector.

It was therefore at the River Ten in London that the Marine insurance started with the Lloyd’s insurance syndicate handling various insurance businesses.

Today marine insurance provide coverage for loss or damage to property insured and injury to third parties caused by perils at sea.

However,there are 3 basic types of marine insurance

  1. Hull marine insurance
  2. Freight marine insurance
  3. Cargo marine insurance

1. Hull marine insurance

Hull refers to the ship or vessel on voyage and this type of marine insurance is concerned with insurance on all types of vessels such as oil tankers, dry cargo carriers, livestock carriers, fishing vessels, pleasure yachts etc.

This insurance is taken by ship owners to cover the ship or vessel while on voyage. It covers loss or damage to the vessel itself or its machinery.

Specific hull marine insurance types include :

  • All risk: covers partial loss as well as total loss of vessels
  • Total loss only: covers the vessel in case of total loss of vessels only
  • Third party liability : covers insured’s legal liability towards a third party
  • All war risk: covers only loss related to war related activities.

2. Freight marine insurance

Freight means cost of transport for goods. Thus it is the total amount expenses on goods on transit. Such amount is usually added to the value of goods(if paid on advance)

For the purpose of insurance and thus insured under a cargo policy. In the event of the loss of the ship and cargo the freight if not paid in advance is not part of the value to be indemnified. The ship owner always takes a freight cover for indemnity against such loss.

3. Cargo marine insurance

Cargo means goods or property that is an article of trade and that is the essence of voyage. It include the personal assets of crew members and tools and equipment necessary in a ship for smooth sailing.

Cargo marine insurance types include :

  • All risk: covers partial loss as well as total loss of vessels
  • Total loss only: covers the vessel in case of total loss of vessels only
  • All war risk: covers only loss related to war related activities.

Other types of marine insurance include:

  • Salvage expense: This refer to to the practice of rendering help to vessels in distress. It is in the interest of the underwriter to encourage seamen to help others and ships in trouble as they will mitigate risk. A ship and crew which succeeds in rescuing another ship that was in trouble is entitled to payment. The compensation which arises out of salvage is known as “salvage award”.
  • The general average contribution: This is an extraordinary sacrifice or expenditure voluntarily incurred in time of a peril which threatened the safe completion of the entire adventure.

This sacrifice or expenditure incurred is shared equitably among those whose property arrived safely including cargo owners and freight carriers.

This therefore means that all the parties involved in the maritime expedition are expected to contribute to such loss and this is technically known as “General Average Contribution “.

In marine insurance, there are several types of covers or policies. These policies differ according to the period for which the insurance operates. Some of the policies are:

Valued policy

This policy specifies the agreed value of the subject matter insured. It states both the value of the goods and the compensation which represents the amount to be received in the event of total loss or proportionate part in case of partial loss.

Time policy

This policy provides for risk associated with vessel for a predetermined period of time usually a year (annual policy). It can be extended for further period if it expires while the vessel is still at sea.

Hull insurances are usually transacted on this basis.

Voyage policy

This policy covers risk associated with a specified vessel or its cargo on a specified voyage on a defined route and the underwriter is not liable to any liability if the vessel deviates from the agreed route and destination.

Thus the cover is said to operate only from an agreed port of departure via an agreed route to an agreed port of destination without any deviation irrespective on the time taken to complete the voyage.

Mixed policy

This is the combination of time and voyage policy.

Building risk policy

This policy covers a ship from the time it’s construction commences until it is completed.

Floating policy

This policy covers any shipment made by the policy holder who makes a declaration as to the exact sum involved in the individual shipment. This policy is peculiar to cargo insurance and it effects a relatively large sum insured. The declaration made by the insured are set against the floating policy reducing the sum insured until the full sum insured is exhausted. This is most convenience when cargo is subjected to a series of export and import transactions and is for merchants who ship cargo frequently.

Open policy

Here the Marine insurer agrees with a proposer to accept insurance on proposed shipment by the proposer for each shipment. A separate policy is issued unlike the floating policy.

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