Marine Insurance- All you need to know about it
If you are an exporter whose goods are on this cargo ship, a freight forwarder who booked and facilitated a shipment on-board this vessel, or the shipowner itself, this is probably the last thing you want to see happen or the worst-case scenario you must have imagined or maybe never factored in altogether.
Anyone who has ever been even remotely involved in the export and import side of things knows that there exists something called marine insurance, which is designed to protect you from the risks associated with the trade business. To put it in simple terms, marine insurance covers the most common imperilments faced by the stakeholders involved in logistics and trade operations. These stakeholders can be anyone from the owners of the ships, owners of the cargo, the people who handle the goods, or even the intermediaries.
The need for marine insurance becomes clear when you think about the adverse conditions prevailing on a ship while it’s on the high seas or even while the goods are loaded onto the ship. With anything in life, there’s always a small yet distinct possibility of something going wrong. However, when the stakes are as high as a cargo worth lakhs and crores of rupees or a ship that’s worth millions, it’s always better to be extra cautious.
The ship and the cargo can face a plethora of issues like adverse weather, navigation systems failure, pirate attacks, and much more. This is the reason why there are so many types and subtypes of marine insurance available. The variety is so huge that many people get confused especially when they are new to all this, however, we’re going to look at some of the most important basics that everyone should know. By the end of this post, you’ll be able to understand the importance of each type of insurance and you’ll know which one to pick for your business. So, without further ado, let’s get to it and start with the basics.
Types of Marine Insurance
There are a few different types of marine insurance and most of the time, you can identify the coverage by the name itself. In this section, we’re going to look at some of the available options that you can choose from depending on your requirements.
1. Hull and Machinery Insurance
If you don’t know what the hull is, it’s the primary supporting body of a ship without including the masts. The hull insurance covers any mishaps that might befall the ship and is generally taken by the owners of the ship. Another similar type of insurance that we’ve clubbed together is machinery insurance which covers the machines and equipment present on a ship. Mechanical insurance is a separate category because the equipment used on ships is usually; very expensive and any damage can easily run into tens of thousands of dollars. If you go for both options together then you’ll have insured your entire ship along with everything on it other than the goods, this is why these two are often mentioned together.
2. Cargo Insurance
Cargo owners are always at risk during the handling of their cargo at the terminal. Even during the voyage, the cargo can get easily damaged if there are any adverse occurrences. These insurances are made available to protect the owner of the cargo from any losses due to misplacement, delays, or mishandling. It also covers any damages to the ship, other cargo, crew, passengers, and even the port.
3. Freight Insurance
As it’s made abundantly clear from the name, the freight insurance covers the loss of freight or any damage to it. If the ship is ever lost or the freight is damaged, you’ll be saved from massive losses if you have purchased this insurance.
4. Liability Insurance
In the event of the ship being involved in a crash, collision, or pirate attack, the cargo is at high risk. Not only the cargo but even the lives of the people aboard the ship are in danger as well. To prevent any losses due to the above-mentioned reasons, liability insurance is taken so that the owner of the ship is indemnified out of any liabilities that may arise.
Types of Policies
We have broadly discussed the various types of insurance available in the previous section. However, insurance is a little more complicated than that. There are a few policies that can dictate the terms and conditions of the insurance and its validity. We’ll be looking at some of the most widely offered policies so that you can get a better idea of what each of these means.
1. Voyage Policy
This policy is for those who need to be insured only for the duration of a particular voyage. As soon as the ship sets off, the risk is attached and similarly, the policy expires as soon as the voyage is completed. There is no restriction in terms of time and the voyage can be as long as it needs to be.
2. Time Policy
If you want to be insured for a particular period, then this policy is the right one for you. The ship can go on as many voyages as needed and the policy will remain active for the stipulated period. In some cases, there might be a continuation clause that states that if the voyage isn’t completed even after the expiry of time, the insurance will be extended until the voyage is completed.
3. Mixed Policy
This is a mix between the previous two types of policies and provides cover until the voyage is completed in a particular period.
4. Port Risk Policy
This is a specific type of policy that’s only useful when the ship is standing at the port. Since the ship can be damaged due to environmental factors or even due to man-made hazards, this policy comes in handy when the ship isn’t on a voyage.
5. Valued Policy
Under this policy, the value of the cargo or the consignment is decided by both parties beforehand. The documents of the policy will stipulate the value of the goods so that there’s no dispute if the cargo or consignment gets lost at any point in time.
6. Unvalued/Open Policy
This policy is the exact opposite of the valued policy and it’s adopted in cases where the value of the cargo or consignment isn’t determined before loading it onto the ship. It’s also known as an open policy and the claim is verified by the insurance provider before the compensation is disbursed.
7. Floating Policy
This is a unique policy in which only the maximum amount insured is mentioned. All the other details aren’t relevant, and this policy is usually issued on an ongoing basis. The remaining details are intimated to the insurance company once the journey starts, and this is why this is utilized by those who regularly engage in the transportation of goods.
These marine insurance variants and policies form an integral part of import & export businesses since you can never be too careful. Marine insurance is a route for these businesses to practice vigilance and reduce the likelihood of potential losses if extreme and least occurring events were to take place.