Marine Insurance Definition, Importance and Marine Losses
Table of Contents
Marine Insurance Definition
Marine insurance refers to insurance against any damage and loss of ships, cargo, and any other transport where cargo is transferred from the point of origin to its destination. Marine insurance is a contract of indemnity.
Despite its name, marine insurance applies to all forms of transport, including air transport. Cargo that is shipped by air acquires marine cargo insurance. Should any loss happen to the cargo while it’s still being transported, you will be protected from the loss if it is insured.
How Marine Insurance Works
Taking up an insurance cover transfers all liability from the owner and exporter to the insurance provider. The exporter, therefore, has limited liability, meaning he will not be bearing sole responsibility for damaged goods; instead, the insurance policy will cover any damages and loss.
Most of the time, exporters are obligated to sign export contracts only when they have a marine insurance policy. They, therefore, have to oblige with contract agreements such as the cost insurance and freight (CIF) or the carriage and insurance paid (CIP). In addition, sellers take up the delivered duty paid (DDP) and the delivered duty unpaid (DDU) even though it is unnecessary.
Importance of Marine Insurance
1. Cushion against exposure to high risk
Transports are necessary when it comes to trade. It is however, a risky process transporting cargo from its origin to its destination. Businesses, therefore, have to take measures to mitigate the risks that come with the transit of cargo. Businesses need to take up marine insurance to avoid extra costs in case of an accident during transit.
2. Anticipated possibility of huge losses
The losses that may occur from the damage of goods during transit could range from hundreds of thousands to millions depending on the cargo on board. It is done to protect themselves from all these unnecessary costs.
3. It’s often a requirement
Marine insurance is often a commercial requirement to sign an export contract. Marine insurance help cover costs for losses like; natural calamities, fire or floods, piracy, and sinking of ships, among others. If a loan finances this cargo, the bank may require proof of marine insurance.
4. Enjoying the benefits of marine cover worldwide
Marine insurance covers cargo from anywhere globally. Marine insurance also covers a considerable range of losses; hence the owner will be at rest in full knowledge the insurer will cover all losses.
5. Options for annual or single trip cover
One can choose whether to take insurance annually or just for a single trip. You, therefore, don’t need to take annual insurance if you will only be dealing with the cargo one time. In addition, it will only get Coverage only when the business requires it.
The insurance, however, ceases to exist once the cargo reaches its destination.
Warranties of Marine Insurance
A warranty is an agreement between the insured and the insurer in marine insurance. The insured undertakes a warranty to ensure some things will or will not be done during the coverage period. It is a list of promises from the insured on things they should or shouldn’t do. Therefore, irrespective of whether the conditions are essential or not, once they are broken, the contract becomes null and void.
Warranties in marine insurance can be divided into either; express warranties or implied warranties.
1. Express warranty
This is a warranty that has been expressed in written words in a policy document.
2. Implied warranty
This is the kind of warranty not written in the policy document. It is mutually understood by both the insured and the insurer. Therefore they will take them with the same consideration as the express warranty.
Some of these implied warranties include; the seaworthiness of ships, no change of destination of the voyage, no delay of the voyage, and no deviation, among others. However, in the case of these implied warranties, there are some exceptions to them. Circumstances of these exceptions are:
- When the delay is a requirement for the safety of human beings.
- Where the delay or deviation was necessary and beyond control.
- If the delay was due to a specific warranty of an insurance policy.
Types of Marine Losses
1. Total loss
The insured goods have been destroyed 100% or near 100% of their value. It can further be categorized into actual loss and constructive loss.
2. Actual total loss
Any marine loss is considered an actual total loss if the following conditions are met.
- If the insured cargo is wholly damaged to the point of no repair.
- Where insured goods are damaged to the point the insured business cannot access them.
- When the cargo vessel is missing, and there is no chance of retrieval.
3. Constructive total loss
Happens when the ship is abandoned, but the cost of its retrieval is higher than the cargo value. The said ship might not be destroyed, but it is not practical to retrieve it. It may be because the repair cost is higher than the value of the ship.
4. Partial loss
It is the kind of loss that is subjective, and only the surveyor can decide on the level of damage. The cargo is partially damaged, so it’s given a chance to be salvaged. It is divided into; particular average loss and general average loss.
5. Particular average loss
It is defined as a partial loss of cargo insured, caused by a danger insured against, and which is not general average loss. This loss is not voluntary. It should be caused by the marine danger by which it is insured.
6. General average loss
Unlike the particular average, the general average loss is the kind of loss caused voluntarily to avoid impending danger. It is said to be “one that is caused by an incredible sacrifice reasonably decided or incurred under inevitable circumstances, to preserve the common interest from an incoming danger.” An example is when the ship is overloaded and risks sinking. The crew will throw out any extra cargo for the safety of the crew and the rest of the cargo.
Subject Matter of Marine Insurance
1. Freight insurance
In this insurance, the goods are lost or damaged during the transport process. The insurer will fully compensate for any goods lost or damaged during the transit. It generally protects the ship from any cost the losses. Freight insurance will cover these costs.
2. Hull insurance
The hull insurance covers the ship’s hull and torso and any furniture in the ship. This insurance is taken to cover the ship’s damages during transit in case of an accident.
3. Marine cargo insurance
Is the insurance taken by the cargo owner to cover any damages or losses encountered at any stage of either bringing it in or picking it up.