Marine Insurance
Insurance is a commercial term that is used to describe a process where in an insurance company insures ships, the cargo, etc and in return the insurance company gets a premium. The premium is decided as per the value of the ship and the risk insured. The more the risk the greater the premium becomes. Well now that you have a fair idea about marine insurance.
Let us discuss some more details about the same. The marine business is a complex one so there are few more things apart from cargo and ships that can be insured in marine insurance. These are containers, onshore and offshore exposed properties, pipelines, and even oil platforms. Marine causality and marine liability also form a part of the marine insurance.
It is interesting to know that how did this concept even develop. Well as sea has been the first medium of world trade marine insurance have been in existence for quite some time. It might be as well the first type of insurance that we have known. The origins can be traced back to Greek and Roman times. However, it was only in the early 1600 that it got a professional and commercial look. Lloyds was the first company to get into this business and the country was England. Slowly the simple business got complex and many more professions got associated with it. Some of them are the lawyers, bankers, surveyors, loss adjusters, and etc.
The people related to the marine insurance and the marine business slowly realized that the business needs to be made more regulated. As a result in the 1906 marine insurance act was passed in London. It is a very comprehensive law that determines the operations of the marine insurance company’s worldwide. Every country in the world has many shipping lines. We are all aware of that. This is exactly why all the countries have their own marine insurance companies.
All these companies follow the same marine insurance act. This ensures a standardized approach is followed in marine insurance across the world. As we know that ships are immensely expensive and when they meet with a loss the amount can reach billion. In the history many marine insurance companies have faced huge losses in the business and some also had to declare bankruptcy. This was the reason that the concept of reinsurance came into existence in marine insurance. What happens in reinsurance is that the marine insurance company insures the ships with other insurance companies. Some time it can be insured with four to five insurance companies. This is to ensure that in case there is a huge loss that runs into billions all these insurance companies will share the loss and thereby no one particular company will have to incur the losses completely. This gives stability to the whole insurance sector.
Marine insurance is a part of general insurance or non life insurance. The practice of marine insurance is something like this. The standard policy of marine insurance is called the SG form. This is the contract that the parties (the insured and the insurer) get into. Now another form called MAR 91 is used. It is also a general statement of insurance that covers all the required clauses of Insurance. This is to ensure that both the parties understand the clauses and they agree to the clauses by signing on all the clauses separately.
The marine insurance keeps the vessel and the cargo separate at the time of insuring. This reduces a lot of confusion and makes the process simple. The vessel can cover hull and machinery (H&M) or total loss only (TLO). The cover can also be of two types. The cover can be for a particular voyage or for a particular time line like a few months. In the time line marine insurance the marine insurance company decides to pay for any loss that happens during the voyages happen during this time. The time line insurance can be for a maximum of one year.
We will now discuss about third party liability in marine insurance. Like all other insurance even marine insurance has the concept of third party insurance. In this the insured is promised that if during the given time if there is any loss to a third party. Then a payment will be done to the third party for the losses. However, the loss can only be compensated by one third of the total loss that occurred. The third party liability in marine insurance mostly happens in the case of collision. Like all other insurance marine insurance also works on the concept that not all the ships at the sea will meet with an accident at the same time. They pull the reserves and try to maintain a balanced situation all the time as the business is quite unpredictable. The concept of reinsurance has helped marine insurance to reduce the risk of loss to a great extent.
Another very important term that one must understand in marine insurance is the difference between the actual loss and the constructive loss. A situation of total loss is one when the ship is lost and the damage is beyond repair. The damage is so bad that it is as good as making the ship all over again. A constructive loss is one in which the cost of repairs and the cost of salvage equals or at times exceeds the value of the ship. The insured and the insurer in the agreement that they get into make some promises to them. The insured promises that he will disclose all the information that he knows about the ship honestly to the insurer. If there is any information that is kept hiding it can be as bad as a breach of contract.
When the damage or loss happens the insured must inform the insurer within the given time that was decided by them. If the insurer is not informed in time even this can be considered as a breach of contract. The insurer will send a person to survey the loss that happened. Once the survey is complete and the report is sent to the insurer. Then based on the report received the loss is compensated. The process might take a long time. This is basically done to ensure that there is no malpractice involved in this process. This is because generally when the question is of money there are chances that fraud might happen.
This is more or less an overview of marine insurance. This happens to be one of the oldest and the most complicated insurance business in the world. All the ships and cargo that sail in the high sea must be insured.
