Skip to content

How Marine Insurance Works?

How Marine Insurance Works?

The marine industry is one of the riskiest industries, and much thought is put into the insurance process. When you buy an insurance coverage, it moves all liability from you to the insurance providers. This means you will be acting as an intermediary with limited liability.

Procuring an insurance policy as an exporter means the policy will protect you against any loss or damage to the cargo. One of the first obligations you must follow as an exporter is to have marine cover; this protects your customers’ interests.

If a loss happens, you need to reach out to your underwriter, who will assign a surveyor to analyse the loss. In marine insurance, it is compulsory to issue agreed value policies. This agreed value is concluded between the insurer and policyholder except when an alleged fraud happens.

Marine insurance protects ships, cargo, and other interests involved in marine transport from losses or damages. It ensures financial security for shipping companies, cargo owners, and other stakeholders, covering risks like piracy, natural disasters, accidents, or sinking.

Key Types of Marine Insurance

  1. Hull and Machinery (H&M) Insurance:
    This type of policy covers physical damage to the vessel itself, including its machinery. It protects against various perils, such as collisions, fires, and storms. Shipowners typically purchase H&M insurance to safeguard their ships’ structural integrity and equipment.
  2. Cargo Insurance:
    Cargo insurance provides coverage for the goods being transported. Shippers or cargo owners buy this insurance to protect against losses or damages during transit. Coverage can include protection from theft, water damage, or accidents. Policies vary based on the nature of the cargo and the shipping route.
  3. Freight Insurance:
    Freight insurance covers the freight payment that the shipping company might lose if goods are damaged or not delivered. It is essential for carriers who earn revenue from shipping goods.
  4. Liability Insurance (Protection and Indemnity, or P&I):
    This insurance covers the legal liabilities of shipowners. It includes protection against liabilities for environmental pollution, injury or death of crew members, and damage to third-party property. P&I insurance is usually managed by Protection & Indemnity Clubs, which are mutual associations of shipowners.

How Marine Insurance Policies Work?

Marine insurance policies operate on a principle called “utmost good faith.” Both the insurer and the insured must disclose all relevant details about the cargo, ship, and journey. If any critical information is withheld, the insurer has the right to void the policy.

Policies can be structured as:

  • Voyage Policies: Coverage for a single voyage. Suitable for one-off shipments, it expires when the cargo reaches its destination.
  • Time Policies: Coverage for a specific period, generally a year. This type is common for ships engaged in multiple voyages over time.
  • Mixed Policies: Combines elements of both voyage and time policies.

The scope of coverage depends on the policy’s terms. Basic coverage often includes perils like sinking, fire, and collision. However, coverage can be expanded to include risks such as theft, war, or piracy through additional clauses.

Claim Process in Marine Insurance

When a loss or damage occurs, the insured party must notify the insurer immediately. An official claim is then filed, supported by necessary documents, like a marine surveyor’s report, bills of lading, and invoices.

The insurer assesses the claim and either compensates for the loss or rejects it based on policy terms.

A unique feature of marine insurance is General Average, a principle where all stakeholders involved in a maritime venture share the losses if some cargo or parts of the ship are sacrificed to save the voyage. For example, if goods are jettisoned during an emergency, all cargo owners and the shipowner must proportionally cover the loss.

Exclusions and Limitations in Marine Insurance

Marine insurance policies generally exclude certain risks, such as losses caused by willful misconduct, delay, or wear and tear of the vessel. War risks and strikes are typically excluded but can be added as extensions.