marine incusrance10 (Autosaved)

8/7/2019 marine incusrance10 (Autosaved)

1/72

MARINE INSURANCE

1

EXECUTIVE SUMMARY

An insurance policy is a written agreement between an insurance company and an

individual or organization that requires insurance.

Insurance was derived by early guilds of seafarers as a form of mutual monetary pool that wasused by the participating ships to make good losses to member. In that sense we call Marine

Insurance as MOTHER OF INSURANCE

Section 3 of the Marine Insurance Act, 1963 defines the marine insurance as under: A contractof marine insurance is an agreement whereby the insurer undertakes to indemnify the assured in

a manner and to the extent thereby agreed, against marine losses, that is to say the lossesincidental to marine adventure

The practice of insuring can be traced back to ancient Babylonia. The merchants paid a sum

of money (including interest) only after the goods arrived safely. Mariners from Phoenicia had

used a system called as bottomry analogous to Insurance during 1200 B.C. With the growth oftrade, the practice of insuring became a necessity iness underwritten at Lloyd's and hence iscalled Mother of Insurance

Marine Insurance in India was introduced in the year 1959 and the bill was passed for the same.

Risk is an inevitable part of everyday life. Nobody can say beforehand when an undesirable

event may occur or how grave the damage may be. Investing in insurance is said to be less risky.This is because an underlying principle is the 'law of large numbers'. The law states that the

ability to predict losses improves with larger groups. Insurance is widely available andaffordable. It is a significant economic force in industrialized countries.

During this entire process of transportation, storage, loading and unloading, the goods areexposed to umpteen hazards. Goods are often lost or damaged due to the operation of thesehazards and there is a pecuniary loss to the exporter/ importer. It is this loss that is taken care of

by marine cargoinsurance or what is more popularly known as transit insurance.

As per the IRDA regulations, the financial statements and audit reports of the insurancecompanies are required to be strictly in accordance with IRDA norms. Hence AS17 has to be

followed.


2/72

MARINE INSURANCE

2

INDEX

Chapter

No.Contents Pg. No.

I

II

III

IV

V

VI

VII

VIII

IX

Introduction

History of Insurance

Fundamentals Principles of Insurance

INCO Terms

Marine Insurance Act

Types of Marine Insurance

Risk Covered Under ICC

Global Scenario

Future of Marine Insurance

Conclusion

Bibliography

9

15

19

30

34

37

54

58

64

76

77


3/72

MARINE INSURANCE

3

CHAPTER I


4/72

MARINE INSURANCE

4


5/72

MARINE INSURANCE

5

INTRODUCTION

Since time immemorial, merchants engaged in maritime commerce have explored ways

to ensure the security essential for the transportation of their merchandise. The onslaught of the

perils of the sea has always threatened the safe passage of goods across the seas and frontiers.

Insurance provides monetary compensation against a predetermined risk. An insurance

company offers such protection for a payment (or premium). It is also the amount the insurancecompany agrees to pay when an unfortunate event occurs.

An insurance policy is a written agreement between an insurance company and an

individual or organization that requires insurance.

Marine insurance is the oldest type of insurance in the world. Out of it grew non-marine

insurance and reinsurance. It traditionally formed the majority of business underwritten at

Lloyd's. Nowadays, Marine insurance is often grouped with Aviation and Transit (ie. cargo)

risks, and in this form is known by the acronym 'MAT'. Respite from this burden of trade was

only possible through mutual aid and assistance. Traders pooled together a fund that could be

utilised in the contingency of their partner. Thus became the foundation of what today is

popularly known as Marine Cargo Insurance.

Insurers refer to insurance purchased by individuals as personal lines coverage and

insurance purchased by businesses as commercial coverage. One can purchase all types of

coverage via online insurance quotes. However, it is in the interest of the customer to check out

multiple competing quotes to find with provider offers best terms and rates as per his unique

requirements.

Modern form of insurance was probably shaped during the industrialization of Europe.

Friendly societies or guilds assumed the role sharing the costs of risks. As the leading maritime

nation, England pioneered the concept of maritime insurance by crystallizing the concepts in a

London pub - Lloyds, which has become synonymous with marineinsurance.


6/72

MARINE INSURANCE

6

MARINEINSURANCE

OBJECTIVE OF THE STUDY

The main objective if this project is to learn about MARINE INSURANCE. Also to get a broad

idea about the companies offering Marine Insurance. This project also helped in understanding

the roles played by various companies, the tribunal, the assured and the insurer.

The study covers the following.

y The history of Marine insurancey The various types of Marine Insurance policies.y The claim settlement proceduresy The guidelines and the framework of Marine Insurance Act, 1906y The remittancesy The global scenario and the future of Marine Insurance.

By undertaking this project it has enhanced my knowledge on marine insurance and

helped me to know how it helps in covering the risks against the various losses incurred by the

insured i.e. the ship owners.

The primary data was obtained from the various insurance companies.

The secondary data was obtained from the internet, newspapers, magazines, TV channels.

Hence this project stands on the various factual reports and information.


7/72

MARINE INSURANCE

7

ESSENTIAL ELEMENTS OF MARINE INSURANCE

The following are the fundamental principles of Marine Insurance

y Insurable Interesty Utmost Good Faithy Contract of Indemnityy Principles of Subrogation & Contributiony Causa Proximay Risk

The types of policies

The subject-matter insured and the risk covered the voyage or period of time or both andthe sums insured. It must be duly signed by the insurer and stamped under the Stamp Act, 1899.

The Marine Insurance Act deals with the following types of policies:

y Open policyy Time policyy Mixed policyy Valued policyy Open valued policyy Floating policyy Duty free policyy Double insurance policyy Sellers contingency policy


8/72

MARINE INSURANCE

8

Claims settlement

Marine insurance claims are of indemnity in nature and require the insurer to analyze

answer questions such as: what is the cause of damage or loss? And subsequently quantify it.

The essence is that every claims adjuster in a marine insurance is required to answer the

following questions

y What is the proximate cause of loss?y Is the proximate cause an insured peril?y Subject to above, what is the correct measure of indemnity?

The risks that are covered under marine insurance policies have been classified into three

categories, better known as Institute Cargo Clause (ICC).

ICC (C) provides a basic standard cargo cover against major casualties whilst ICC (B)

provides a wider intermediate form of cover and ICC (A) provides the broadest cover on an all

risks with exceptions basis.

The future for Marine Insurance is very bright and lasting long as the internationaltrade is increasing day by day and has become the necessity of the hour. Hence to protect the

goods and the vessel, one needs safety and hence Marine Insurance comes in the picture.


9/72

MARINE INSURANCE

9

CHAPTER II


10/72

MARINE INSURANCE

10

HISTORY OF INSURANCE

The practice of insuring can be traced back to ancient Babylonia. The merchants

paid a sum of money (including interest) only after the goods arrived safely. Mariners from

Phoenicia had used a system called as bottomry analogous to Insurance during 1200 B.C. With

the growth of trade, the practice of insuring became a necessity.

The modern origins of marine insurance law were in the law merchant, with the

establishment in England in 1601 of a specialized chamber of assurance separate from the other

Courts. Lord Mansfield, Lord Chief Justice in the mid-eighteenth century, began the merging of

law merchant and common law principles.

The establishment of Lloyd's of London, competitor insurance companies, a

developing infrastructure of specialists and the growth of the British Empire gave English law a

prominence in this area which it largely maintains and forms the basis of almost all modern

practice. The growth of the London insurance market led to the standardization of policies and

judicial precedent further developed marine insurance law.

In 1906 the Marine Insurance Act was passed which codified the previous common

law; it is both an extremely thorough and concise piece of work. Although the title of the Act

refers to marine insurance, the general principles have been applied to all non-life insurance.

In the 19th

century, Lloyd's and the Institute of London Underwriters (a grouping of

London company insurers) developed between them standardized clauses for the use of marine

insurance, and these have been maintained since. These are known as the Institute Clauses

because the Institute covered the cost of their publication.


11/72

MARINE INSURANCE

11

Within the overall guidance of the Marine Insurance Act and the Institute Clauses parties retain a

considerable freedom to contract between themselves.

Advent in India

In the absence of any legislation relating to marine insurance, the courts in India had

followed the principles of English law and references were made to judgments of English cases.

After independence, the need to have separate legislation was felt and the Indian Marine

Insurance Bill was tabled in 1959. The bill was finally passed on April 18, 1963 and operative as

Indian Marine Insurance Act, 1963

The Indian Marine Insurance Act, 1963 is a substantial reproduction of its English counterpart.

The Indian Act is however fine-tuned to Indian conditions and is a comprehensive legislation.


12/72

MARINE INSURANCE

12

INDIAN REGISTER OF SHIPPING (IRS) :

This is a Classification Society establish in India in 1975. TAC has agreed to accept hull

insurance of vessels up to a value of Rs. 10 Crores if the vessel is classed with IRS. Discounts

are offered on premium for trawlers exceeding 100 GRT, tugs exceeding 250 BHP and barges

exceeding 500 GRT, if classified with IRS.

Services of IRS are also available for the purposes:

y Damage surveys of ships, offshore structures and related equipment and containers.y Warranty surveys for marine transportation and installation of offshore structure.y Design appraisal, inspection and certification of fixed offshore platforms during

construction on behalf of underwriters.

y Survey of damage repairs, preparation of repair specifications, evaluation of tender bids.Supervision of repairs, endorsement of repairers bills, etc., whether in India or abroad.


13/72

MARINE INSURANCE

13

CHAPTER III


14/72

MARINE INSURANCE

14

FUNDAMENTAL PRINCIPLES OF INSURANCE

Some useful terms in Insurance:

y INDEMNITYIt means that the insured, in case of loss against which the policy has been issued, shall

be paid the actual amount of loss not exceeding the amount of the policy, i.e. he shall be fully

indemnified. The object of every contract of insurance is to place the insured in the same

financial position, as nearly as possible, after the loss, as if the loss had not taken place at all. It

would be against public policy to allow an insured to make a profit out of his loss or damage.

Fundamental

Principles of

Marine

Insurance.

INSURABLE

INTERST

INDEMNITY

UTMOST

GOOD FAITH

CAUSA

PROXIMARISK

SUBROGATION

CONTRIBUTION


15/72

MARINE INSURANCE

15

A marine insurance policy, in common with other insurance contracts, is a contract of

indemnity, the object of which is that the assured shall be indemnified against loss, but, by sec.3

of the MIA, 1963, the indemnity that is provided is in manner and to the extent thereby agreed

The subject-matter of marine insurance is in transit, and incase of cargo, it is in course

of delivery under a contract of sale. Values are constantly fluctuating and cargo appreciates in

values the closer it gets to the destination. A reasonable indemnity is achieved by agreeing in

advance the insured value based on CIF value of goods to which it customary to add an agreed

percentage which is intended to indemnify in respect of general overheads and provide a margin

of profit on the transaction

y UTMOST GOOD FAITHEvery contract of insurance is a contract uberrimae fidei, that is, one which requires utmost

good faith on the part of both, the insurer and the assured. Sections 19 to 23 of Marine

Insurance Act (1963) deals with principle of utmost good faith.

Any circumstances which is within the knowledge of the person insuring and is likely to

influence the insurer in deciding whether he will accept or refuse the risk, or influence him in

assessing the premium which he will charge, must be fully disclosed to the insurer before the

contract is concluded.

For example:

Over valuation, so far as the cargo is concerned, must be communicated to the insurer; if it is

not so communicated, it is a concealment of a material fact and voids the insurance.

Not only must every material circumstance which is known to the assured be disclosed by him,

but the assured is also deemed to know by him. In the absence of inquiry, following

circumstances need not be disclosed, namely

It is only when the insurer knows the whole truth that he is in a position to judge.


16/72

MARINE INSURANCE

16

y INSURABLE INTERESTSection 6 to 17 of Marine Insurance Act, 1963 deal with the subject of insurable

interest. The essential features are that there must be a physical object exposed to marine perils

and that insured must have some legal relationship to the object, in consequence of which he

benefits its preservation and is prejudiced by its loss or detention or damage happening to it or

where he may incur liability in respect thereof.

When Insurable Interest must attach:

An assured is not required to have an insurable interest when the insurance is affected but

he must. Have a reasonable expectation of acquiring such interest, and He must have an interest

at the time of the loss

The Act provides where the subject matter is insured lost or not lost, the assured may

recover although he may not have acquired his interest until after the loss, unless at the time of

effecting the insurance , the assured was aware of the insurer was not. They render the protection

of the contract where the voyage has already commenced retrospective to the commencement of

the risk. Thus, where the property suffers loss before the assured acquires his interest, he is

protected by the policy, provided the risk in the goods has passed to him. When the assured no

interest at the time of loss, he cannot acquire interest by any act or election after he is aware of

the loss.

For example:

When goods are purchased on FOB terms, the purchaser has no insurable interest in such

goods during their transit from seller factory to the vessel. The owner of a ship run a risk of

losing his ship, the charterer of the ship runs a risk of losing his freight and the owner of the

cargo incurs the risk of losing his goods and profit. So, all these persons have something at stake

and all of them have insurable interest.


17/72

MARINE INSURANCE

17

CAUSA PROXIMA

The rule of causa proxima means that the cause of the loss must be proximate or

immediate and not remote. If the proximate cause of the loss is a peril insured against, the

insured can recover. When a loss has been brought about by two or more causes, the questionarises as to which is the causa proxima, although the result could not have happened without the

remote cause. But if the loss is brought about by any cause attributable to the misconduct of the

insured, the insurer is not liable.

For example:

Many interesting cases illustrate the principle of causa proxima. Where a ship was

deliberately scuttled with the connivance of the owner, it was pleaded by an innocent mortgagee

that the proximate cause of the loss was the actual incursion of the water, a peril of the sea, but

the court held that it was absurd to look at any nearer cause then the actual act of scuttling.

y RISKIn a contract of insurance the insurer undertakes to protect the insured from a specified

loss and the insurer receive a premium for running the risk of such loss. Thus, risk must attach to

a policy.

y MITIGATION OF LOSSIn the event of some mishap to the insured property, the insured must take all necessary

steps to mitigate or minimize the loss, just as any prudent person would do in those

circumstances. If he does not do so, the insurer can avoid the payment of loss attributable to his

negligence. But it must be remembered that though the insured is bound to do his best for his

insurer, he is, not bound to do so at the risk of his life.

y SUBROGATIONSubrogation is the right by which an insurer, having settled a claim for loss or damage, is

entitled to place himself in the position of the assured to the extent of acquiring all rights and

remedies in respect of the loss assured may have possessed.


18/72

MARINE INSURANCE

18

Subrogation is the corollary of the principle of indemnity and the right of

subrogation therefore applies to policies which are contracts of indemnity. In marine insurance,

subrogation applies only after payment of a loss.

Section 79 of MIA, 1963, which deals with right of subrogation, draws a clear distinction

between cases where an insurer has paid a total loss and cases where he has paid only a partial

loss. Where a total loss is involved, the insurer is entitled to take over may remain of the subject-

matter so paid for. In case of a partial loss claim he has no such entitlement.

In either case- that is, whether the loss is total or partial, the insurer, on payment of such

claims, is subrogated to all the rights and remedies of the assured in respect of the subject-matter

insured, with the qualification that, in cases for payment of a partial loss, the insurers right

extend only so far as the assured has been indemnified. Thus, in case of partial loss the in surer is

entitled to recover only up to the amount which he has paid, in respect of rights and remedies.

y CONTRIBUTIONWhere there are two or more insurance on one risk, the principle of contribution comes

into play. The aim of contribution is to distribute the actual amount of loss among the different

insurers who are liable for the same risk under different policies in respect of the same subject

matter. Any one insurer may pay to the insured the full amount of the loss covered by the policy

and then become entitled to contribution from his co-insurers in proportion to the amount which

each has undertaken to pay in case of loss of the same subject-matter.

In other words, the right of contribution arises when (I) there are different policies which

relate to the same subject-matter (ii) the policies cover the same peril which caused the loss, and

(iii) all the policies are in force at the time of the loss, and (iv) one of the insurers has paid to the

insured more than his share of the loss.


19/72

MARINE INSURANCE

19

y AVERAGEAverage has several meanings in the insurance industry.

In Marine insurance, average means loss and particular average means partial loss.

See also General Average.

If a policy is subject to average, then, if the sum insured at the time of a loss is less than

the actual value of the property insured, then the amount of claimed under the policy will be

reduced in proportion to the underinsurance. In mathematical terms:

Allowable Claim =

Loss x Sum

Insured

Value at risk

If you do not insure for the full values at risk, then you may not be able to obtain a full

settlement of any loss

An average adjuster is a marine claims specialist responsible for adjusting and providing

the general average statement. He is usually appointed by the ship owner or insurer.


20/72

MARINE INSURANCE

20

IMPORTANCE OF INSURANCE

Risk is an inevitable part of everyday life, business etc. Nobody can say beforehand when

an undesirable event may occur or how grave the damage may be. Investing in insurance is said

to be less risky. This is because an underlying principle is the 'law of large numbers'. The law

states that the ability to predict losses improves with larger groups. Insurance is widely available

and affordable. It is a significant economic force in industrialized countries.

The aim of all insurance is to compensate the owner against loss arising from a variety of

risks, which he anticipates, to his life, property and business.


21/72

MARINE INSURANCE

21

NEED FOR MARINE INSURANCE

Capital or consumer goods are produced in one country whereas users or consumers are

located in some other part of the country or elsewhere in the world. Therefore, there is a need for

transportation or transit of such goods by rail, road, inland waterway, sea or air.

y During this process of transportation, the cargo is exposed to various hazardslike theft, breakage or damage. In export/ import trade, goods are transported from the

warehouse of the exporter at some interior place in one country and travel to the port for loading

on the vessel.

y In some cases there may be intermediate storage at the port warehouse due tonon-availability of a vessel. The goods once shipped travel through oceans and seas confront the

perils of the seas.

y At the destination port there is another phase of unloading, a probable storage atthe port and then loading on the land vehicle for transportation to the interior part of the country

where the consignee is located.

During this entire process of transportation, storage, loading and unloading, the

goods are exposed to umpteen hazards. Goods are often lost or damaged due to the operation

of these hazards and there is a pecuniary loss to the exporter/ importer. It is this loss that is taken

care of by marine cargoinsurance or what is more popularly known as transit insurance.

Transit insurance is intended to cover the goods from warehouse of the consignor to the

warehouse of the consignee. However, such insurance can be obtained from any nodal point of

transit to another, depending upon the contract of sale and the requirement of the parties

concerned.

In many instances, liability can be for a lower value than the actual value of the cargo or

where for example the loss or damage is beyond the control of the carriers, the carriers may

actually not have any liability. Therefore, although transit insurance is not compulsory, the need

for it is very real.


22/72

MARINE INSURANCE

22

Even without such insurance the trader can proceed to recover any transit loss from the

carriers by virtue of the transport contract which assigns the responsibility of safe delivery of the

goods on the transporter. However, the limits of liability laid down by law and the cumbersome

procedure of litigation against carriers for recovery and of course the uncertainty of the recovery

itself makes the case for marine insurance sound.

Basically, marine cargo insurance is required by the following:

y Exporters and Importery Companies that have large internal movements to customers or between

subsidiaries/ depots.

y Banks and other financial institutions may require the borrowing company toinsure in order to safeguard the investment.


23/72

MARINE INSURANCE

23

IRDA REGULATIONS, 2002

With the opening of the insurance sector in India to the private and global giants the

entire scenario of the industry has under-gone a drastic change. The insurance operations in India

are in the phase of getting more structured and increasingly more complex. The financialstatements and audit reports of the insurance companies are also required to be strictly in

accord-dance with IRDA. The article deals with the requirements of Schedule B to the IRDA

Regulations, 2002.

Accounting Standard:

Financial Statements comprises of,

y Balance Sheet,y Receipts and Payments Account (Cash Flow Statement) Profit & Loss Account

(Shareholders Account)

y Revenue Account (Policyholders Account)AS 17 defines a segment as a distinguishable area or component of an enterprise on the

basis of particular risks and returns that are different from those of other segments. However as

per IRDA requirements segment reporting as specified by AS 17 shall apply to all insurers

irrespective of the requirements regarding listing and turnover mentioned therein.

Premium Recognition:

Premium shall be recognized as income over the Risk Period or Contract Period-

whichever is appropriate. Hence premium received in advance shall be treated separately in the

financial statement . A Reserve for Unexpired Risk shall be created with that part of premium

which is attributable to and to be carried forward to the succeeding accounting period and shall

not be less than the following limits as specified by Sec. 64V(ii)(b) of the Insurance Act l938:

Fire & Misc. Business - 50% of premium

Marine Cargo Business - 50% of premium

Marine Hull Business - 100% of premium


24/72

MARINE INSURANCE

24

CHAPTER IV


25/72

MARINE INSURANCE

25

INCO TERMS

A brochure prepared by the International Chambers of Commerce provides definite

meaning to various sale terms used. The brochure is revised and the terms are called INCO

terms, which are used internationally

y EXW. - ExWorks:In the case of Sales ex works the buyer will bear all the risks from the factory gate.

Buyer arranges for pick up of goods at the seller's location.

Seller is responsible for packing, labeling, and preparing goods for shipment on a specified date

or time frame.

y F.C.A.( free carrier)The seller delivers the goods to a carrier to be named by the buyer at a place notified by

the buyer.


26/72

MARINE INSURANCE

26

Buyer assumes all risk.

Buyer pays all transportation

y F.A.S. (Free Along Side)Buyer: arranges for ocean transport. Seller is responsible for packing, labeling, preparing

goods for shipment and delivering the goods to dock.

Buyer pays all ocean transport costs.

Seller is responsible for costs associated with transporting the goods to the dock.

y FOB - Free On Board (over water only)Seller arranges for ocean transport of the goods, preparing goods for shipment, and

loading the goods onto the vessel.

Buyer is in charge once the items are on board.

y C.P.T.(Carriage Paid To)The sellers bear the cost of carriage up to a named point. Seller pays wharf age (charges

to load the goods onto the ship) and freight forwarder fees.

y CFR - Cost and Freight (over water only):Seller has the same responsibilities as when shipping FOB, but shipping costs are prepaid

by the seller.

y D.A.F.(Delivery At Font)The seller undertakes to deliver the goods at a named place or point at the frontier.


27/72

MARINE INSURANCE

27

y D.E.S. (Delivery Ex-Ship)The seller undertakes to arrange shipment up to the destination port and bears coat as

well as risk up to that point.

Seller assumes risk until the shipment reaches the overseas dock.

Seller pays costs of freight fees up to destination

y CIF Cost, Insurance, and Freight (over water only):Seller has the same responsibilities as when shipping CFR with the addition of including a

marine insurance policy.

y D.E.Q.(Delivery Ex -Quay)The position is similar to D.E.S. except that instead of on board the goods are place on

the quay. Seller assumes risk until the shipment reaches the overseas dock.

y D.D.P. (Delivery Duty Paid)The position is as D.D.P. except that the Custom duty is paid by the seller. Seller pays

insurance and freight forwarder feesWhat are the risk factors that could result in the worst

scenario, i.e. a total loss? The greatest risk is fire and the most common cause is hazardous

cargo. Poor packing and stowage can easily result in explosion on the high seas. In addition, ifthe goods are mis-declared they can be placed in such a location on the ship that it could result in

an increase in the risk of fire


28/72


29/72

MARINE INSURANCE

29

MARINE INSURANCE ACT, 1906.

The most important sections of this Act include:

y s.4: a policy without insurable interest is void.y s.17: imposes a duty on the insured of uberrimae fides (as opposed to caveat

emptor); i.e. That question must be answered honestly and the risk not misrepresented.

y s.18: the proposer of the insurer has a duty to disclose all material facts relevant tothe acceptance and rating of the risk. Failure to do so is known as non-disclosure or concealment

(there are minor differences in the two terms) and renders the insurance voidable by the insurer.

y s.33(3): If [a warranty] be not [exactly] complied with, then, subject to anyexpress provision in the policy, the insurer is discharged from liability as from the date of the

breach of warranty, but without prejudice to any liability incurred by him before that date.

y s.34 (2): where a warranty has been broken, it is no defense to the insured that thebreach has been remedied, and the warranty complied with, prior to the loss.

y s.34 (3): a breach of warranty may be waived (i.e. ignored) by the insurer.y s.50: a policy may be assigned. Typically, a ship-owner might assign the benefit

of a policy to the ship-mortgagor.

y s.60-63: deals with the issues of a constructive total loss. The insured can, bynotice, claim for a constructive total loss with the insurer becoming entitled to the ship or cargo


30/72

MARINE INSURANCE

30

if it should later turn up. (By contrast an actual total loss describes the physical destruction of a

vessel or cargo.)

y s.79: deals with subrogation; i.e. the rights of the insurer to stand in the shoes ofan indemnified insured and recover salvage for his own benefit.

y Schedule 1 of the Act contains a list of definitions; schedule 2 contains the modelpolicy wording

MARINE INSURANCE

The contract of marine insurance is generally affected through the agency of insurance

brokers employed by the insured. The broker prepares a brief memorandum of the risks to be

covered and takes it to a number of individual insurers, called underwriters, each of whom initial

the note for the amount he is prepared to underwrite. The document, known as "The slip,

contain information such as the name of the ship, the date of voyage, the description of the risk,

the sum insured and the rate of premium."The Slip" is in practice a complete and final contract.

However, a contract of marine insurance must be embodied in a marine policy in accordance

with the Act.


31/72

MARINE INSURANCE

31

CHAPTER VI


32/72

MARINE INSURANCE

32

TYPES OF MARINE INSURANCE POLICIES

The document containing the terms and conditions of the contract is called the Marine

Policy. It must contain the names of the assured and the insurer or insurers. The subject-matter

insured and the risk covered the voyage or period of time or both and the sums insured. It mustbe duly signed by the insurer and stamped under the Stamp Act, 1899. The Marine Insurance

Act deals with the following types of policies:

Types of Policies

Various types of policies are available in the Indian market to cater to the varied needs of

a cross section of clients, such as

Open Policies

Exporters/ importers, firms and companies that handle a large turnover of goods take

such policies. It becomes extremely cumbersome for them to take specific voyage policies, each

and every time they engage in transportation of their goods as they need to handle innumerable

transactions during a given period of time.

Instead, they take an Open Policy that is normally issued for a period of one year and insure a

part of their annual turnover at the beginning of the policy and go on declaring the value of

their consignments to the insurance companies each time they send them.

For instance, an exporter's annual turnover is Rs.10 crores per year and approximately Rs.1

crore worth of goods is exported every month. Each consignment is valued at Rs.5 lakhs. There

are about 20 trips every month. It is impracticable for him to take 20 specific voyage policies

every month and so he takes an Open Policy for Rs.2 crores, and goes on sending declaration

slips, giving certain details about the transit and its value, to the insurance company. Every time

the exporter sends a declaration the Sum Assured under the policy is reduced by the said amount.

Before the entire Sum Assured is exhausted, the exporter again pays the premium to cover

another Rs.2 crores and reinstates the Sum Assured and continues like this.


33/72

MARINE INSURANCE

33

At the end of the policy term, it is likely that a certain balance amount of Sum Assured

remains pending, in which case the premium corresponding to the balance amount left over is

refunded to him.

Time Policy

Where the subject matter is insured for a definite period of time, it is called a "Time

Policy. The ship may pursue any course it likes; the policy would cover all the risks from perils

of the sea for the sated period of time. A time policy cannot be for a period exceeding one year,

but it may contain a continuation clause.

Mixed Policy

It is a combination of voyage and time policies and covers the risk during particular

voyage for a specified period of time.

Valued Policy

It is a policy, which specifies the agreed value of the subject-matter insured. If there is no

fraud or misrepresentation, the value in a valued policy is conclusive as between the insurer and

the insured, whether the loss is partial or total.

Open or Un-valued Policy

In this policy the value of the subject-matter insured is not specified. Subject to the limit

of the sum assured, it leaves the value of the loss to be subsequently ascertained.


34/72

MARINE INSURANCE

34

Floating Policy

The practice of taking out floating policies has come in vogue because of the difficulty of

knowing by which ship or ships the goods are to be shipped. Such a policy therefore only

mentions the amount for which the insurance is taken out and leaves the name of the ship(s) andother particulars to be defined by subsequent declarations.

WARRANTIES

A warranty in a contract of marine insurance is substantially the same as a condition in a

contract of sale of goods. It gives the aggrieved party the right to avoid the contract. A warranty

may be express or implied.

These are discussed below in brief:

Express warranties

An express warranty is one, which is expressly stated in the policy of insurance it must be

included in or written upon the policy. There is no limit to the number of express warranties, but

those generally included in a marine policy are that the ship is seaworthy on a particular day, that

the ship will sail on a specified day, that the ship will proceed to its destination without any

deviation and that the ship is neutral and will remain so during the voyage.

ImpliedWarranties

Implied warranties are conditions not incorporated in a policy but assumed to have been

included in the policy by law, custom or general agreement. These warranties are:

y Seaworthiness: A ship is deemed to be seaworthy when she is reasonably fit inall respects to encounter the ordinary perils of the sea or the adventure insured. This warranty

attaches only up to the time of the sailing of the ship. In a time policy there is no implied

warranty that the ship shall be seaworthy at any stage of the adventure. In a voyage policy where

the voyage is to be performed in stage, the ship must be seaworthy at the commencement of each

stage, it must be fit to encounter the ordinary perils of the part and if the voyage policy is on

goods, it must be fit to carry the goods to the destinations contemplated by the policy:


35/72

MARINE INSURANCE

35

y Legality of the Voyage: There is an implied warranty that the adventure insuredis a lawful one and that the adventure shall be carried out in a lawful manner.

y Non -deviation: The warranty that the ship shall not deviate from its prescribed.Usual or the customary route is also an implied warranty. The risk does not attach if the places of

departure or destination of the ship are hanged, or if the ship takes the ports of call by an order

different from the one mentioned in the policy. The insurer is discharged from his liability as

from the time of deviation, and also if there is unreasonable delay is excused under certain

circumstances.

Voyage and time policies

Where the contract is to insure the subject-matter 'at and from,' or from one place to

another or other, the policy is called a 'voyage policy,' and where the contract is to insure the

subject-matter for a definite period of time the policy is called a 'time policy.' A contract for both

voyage and time may be included in the same policy.

Designation of subject-matter

The subject-matter insured must be designated in a marine policy with reasonable certainty.

y The nature and extent of the interest of the assured in the subject-matter insuredneed not be specified in the policy.

Where the policy designates the subject-matter insured in general terms, its shall be

construed to apply to the interest intended by the assured to be covered.

y In the application of this section regard shall be had to any usage regulating thedesignation of the subject-matter insured.


36/72

MARINE INSURANCE

36

Duty Insurance Policy

Customs duties form a major part of the cost of imported goods. Once the goods land at the port

of destination custom, duty becomes payable. In case the goods are damaged during the transit

from the port to the importer's warehouse, the c.i.f value is not sufficient to represent the actual

value of the goods since the custom duties should have already been paid. This additional

element of cost can be covered by a Duty Insurance Policy. Claims under a duty policy are only

payable if the claim is otherwise admissible in the marine cargo policy covering the goods.

Double insurance

y Where two or more policies are affected by or on behalf of the assured on thesame adventure and interest or any part thereof, and the sums insured exceed the indemnity

allowed by this Act, the assured is said to be over-insured by double insurance.

y Where the assured is over-insured by double insurance.y The assured, unless the policy otherwise provides, may claim payment from the

insurers in such order as he may think fit, provided that he is not entitled to receive any sum in

excess of the indemnity allowed by this Act;

y Where the policy under which the assured claims is a valued policy, the assuredmust give credit as against the valuation for any sum received by him under any other policy

without regard to the actual value of the subject-matter insured;

y Where the policy under which the assured claims is an unvalued policy he mustgive credit, as against the full insurable value, for any sum received by him under any other

policy;

y Where the assured receives any sum in excess of the indemnity allowed by thisAct, he is deemed to hold such sum in trust for the insurers, according to their right of

contribution among themselves.


37/72

MARINE INSURANCE

37

y Seller's Contingency Policy

In almost all export transactions where credit is allowed by the seller to the buyer and the

goods are not exported on c.i.f. basis, responsibility for the goods passes to the buyer when the

goods are loaded on to the overseas vessel but ownership does not change until the buyer accepts

the goods and relative documents.

Thus, if the seller is allowing credit to the buyer has shipped goods of f.o.b. (free on

board) terms, where the responsibility for loss or damage to the goods is passed to the buyer

when the goods are loaded on to the overseas vessel, the seller has no control over the conditions

of the insurance cover arranged by the buyer.

In the event of loss of or damage to the goods in transit from a peril insured against and

the buyer refusing to pay for such loss or damage, the seller could stand to lose financially.

Seller's Interest or Contingency Interest cover could help to prevent this.


38/72

MARINE INSURANCE

38

ASSIGNMENT OF POLICY

A marine policy is assignable by endorsement, or in any other customary manner, and the

assignee can sue on it in his ow n name subject to any defense which would have

been available against the person who affected the policy. The assignment may be made either

before or after the loss, but an assured who has parted with or lost his interest in the subject-

matter insured cannot assign.Assignment of Policy

When and how policy is assignable

y A marine policy is assignable unless it contains terms expressly prohibitingassignment. It may be assigned either before or after loss.

y Where a marine policy has been assigned so as to pass the beneficial interest insuch policy, the assignee of the policy is entitled to sue thereon in his own name; and the

defendant is entitled to make any defense arising out of the contract which he would have been

entitled to make if the action had been brought in the name of the person by or on behalf of

whom the policy was effected.

Assured who has no interest cannot assign

Where the assured has parted with or lost his interest in the subject-matter insured, and

has not, before or at the time of so doing, expressly or impliedly agreed to assign the policy, any

subsequent assignment of the policy is inoperative: Provided that nothing in this section affects

the assignment of a policy after loss.


39/72

MARINE INSURANCE

39

The Policy

Contract must be embodied in policy

Subject to the provisions of any statute, a contract of marine insurance is inadmissible in

evidence unless it is embodied in a marine policy in accordance with this Act. The policy may be

executed and issued either at the time when the contract is concluded, or afterwards.

A marine policy must specify -

y The name of the assured, or of some person who effects the insurance on his behalf:y Signature of insurery A marine policy must be signed by or on behalf of the insurer, provided that in the case

of a corporation the corporate seal may be sufficient, but nothing in this section shall be

construed as requiring the subscription of a corporation to be under seal.

y Where a policy is subscribed by or on behalf of two or more insurers, eachsubscription, unless the contrary be expressed, constitutes a distinct contract with the assured.

Effect of receipt on policy

Where a marine policy effected on behalf of the assured by a broker acknowledges the

receipt of the premium, such acknowledgement is, in the absence of fraud, conclusive as between

the insurer and the assured, but not as between the insurer and broker.

Loss and Abandonment

Included and excluded losses

y Subject to the provisions of this Act, and unless the policy otherwise provides, theinsurer is liable for any loss proximately caused by a peril insured against, but, subject as

aforesaid, he is not liable for any loss which is not proximately caused by a peril insured against.

In particular:

y The insurer is not liable for any loss attributable to the willful misconduct of theassured, but, unless the policy otherwise provides, he is liable for any loss proximately caused by


40/72

MARINE INSURANCE

40

a peril insured against, even though the loss would not have happened but for the misconduct or

negligence of the master or crew;

y Unless the policy otherwise provides, the insurer on ship or goods is not liable forany loss proximately caused by delay, although the delay be caused by a peril insured against;

y Unless the policy otherwise provides, the insurer is not liable for ordinary wearand tear, ordinary leakage and breakage, inherent vice or nature of the subject-matter insured, or

for any loss proximately caused by rats or vermin, or for any injury to machinery not

proximately caused by maritime perils.

Loss and assessment in claims settlements.

Loss occurs when there is damage to a person or property

In which the assurer has an insurable interest loss is compensated in terms of insurance

policy only when the event is occurred and the person and or the property insured are covered by

a valid marine insurance policy.A valid marine insurance means that the policy is effective at the

time of happening of the event, and it is not unlawful or against public policy. The treatment of

loss is by the way of indemnity. Indemnity in marine insurance is different from other types of

insurance. Loss in case of marine insurance policies is explained by the Section 6of the Indian

Marine Insurance Act, 1963.

LOSS

TOTAL LOSS

ACTUAL TOTAL

LOSS

CONSTRUCTIVE

TOTAL LOSS

PARTIAL LOSS


41/72

MARINE INSURANCE

41

It states that:

y A loss may be either partial or total. Any loss other than total loss is partial loss.y A total loss may be either actual loss or constructive total loss.y Unless and otherwise stated in the policy, insurance against total loss includes

both constructive as well as actual loss.

y Where the assured claims for the total loss and the evidence proves only partialloss, insurer is entitled to indemnify the partial loss under the contrary is proved.

y Where the goods reach the destination in consignments but are not in identifiableby reasons of obliteration, the loss that can be recovered is partial and not total.

Section 60 of the Act defines the constructive total loss. It states that:

There is said to be a constructive total loss when the subject matter insured is abandoned

on account of its total loss being unavoidable, or that it could not be preserved from its actual

loss without expenditure, which would be its value in case that expenditure is incurred.

In case there is constructive loss

y Where the assured is deprived of the possession of the ship and the goods due tothe peril against which it is insured, and it is unlikely that he can recover the ship or goods, or the

cost of recovering is such that it would exceed their value when it is recovered.

y Where the vessel is so damaged by the peril insured against that the cost of therepair of damage would exceed the value of the ship when such expenditure is incurred.

y In the case of damage to goods, where the cost of repairing the damage andforwarding the goods to their destination would exceed their value on arrival.

Partial and total loss

y A loss may be either total or partial. Any loss other than a total loss, as hereinafterdefined, is a partial loss.

y A total loss may be either an actual total loss, or a constructive total loss.y Unless a different intention appears from the terms of the policy, an insurance

against total loss includes a constructive, as well as an actual, total loss.


42/72

MARINE INSURANCE

42

y Where the assured brings an action for a total loss and the evidence proves only apartial loss, he may, unless the policy otherwise provides, recover for a partial loss.

y Where goods reach their destination in specie, but by reason ofobliteration of marks, or otherwise, they are incapable of identification, the loss, if any, is

partial, and not total.

Actual total loss

y Where the subject-matter insured is destroyed, or so damaged as to cease to be athing of the kind insured, or where the assured is irretrievably deprived thereof, there is an actual

total loss.

y In the case of an actual total loss no notice of abandonment need be givenNotice of abandonment

y Subject to the provisions of this section, where the assured elects to abandon thesubject-matter insured to the insurer, he must give notice of abandonment. If he fails to do so the

loss can only be treated as a partial loss.

y Notice of abandonment may be given in writing, or by word of mouth, or partly inwriting and partly by word of mouth, and may be given in any terms which indicate the intention

of the assured to abandon his insured interest in the subject-matter insured unconditionally to the

insurer.

y Notice of abandonment must be given with reasonable diligence after the receiptof reliable information of the loss, but where the information is of a doubtful character the

assured is entitled to a reasonable time to make inquiry.

y Where notice of abandonment is properly given, the rights of the assured are notprejudiced by the fact that the insurer refuses to accept the abandonment.

y The acceptance of abandonment may be either express or implied from theconduct of the insurer. The mere silence of the insurer after notice is not acceptance.


43/72

MARINE INSURANCE

43

y Where notice of abandonment is accepted the abandonment is irrevocable. Theacceptance of the notice conclusively admits liability for the loss and the sufficiency of the

notice.

y Notice of abandonment is unnecessary where, at the time when the assuredreceives information of the loss, there would be no possibility of benefit to the insurer if notice

were given to him.

y Notice of abandonment may be waived by the insurer.y Where an insurer has re-insured his risk, no notice of abandonment need by given

by him.

yEFFECT OF ABANDONMENT

y Where there is a valid abandonment the insurer is entitled to take over the interestof the assured in whatever may remain of the subject-matter insured, and all proprietary rights

incidental thereto.

Claim settlement

Marine insurance claims are of indemnity in nature and require the insurer to analyze

answer questions such as: what is the cause of damage or loss? And subsequently quantify it.

The essence is that every claims adjuster in a marine insurance is required to answer the

following questions

y What is the proximate cause of loss?y Is the proximate cause an insured peril?y Subject to above, what is the correct measure of indemnity?

The first question can be answered by the claims adjuster after having a look at the

damaged goods and the other things on which a demand foe claims is made. For answering the

second question the claims examiner has to quantify the loss so that a proper amount of

indemnity can be provided for

When a claim is intimated the following should be checked-


44/72


45/72

MARINE INSURANCE

45

favor of these agents. They are authorized to settle the claim directly with the claimants, and

draw the amount of Letter of Credit in their favor.

y Advice on claims so paid is sent to the underwriting office periodically. In thecase of recoveries from the third parties, the insures should actively pursue the recovery from

them. Thus is because any recovery so made would help in reducing the claims ratio.

FOR CLAIMS UPTO RS.25000/-

No outside survey any self survey by the insured subject to adherence to following procedure.

y Submission of all relevant documents like original copy of invoice.y Damage/ shortage/ non-delivery/ certificate issued within stipulated time limit of

six months.

y Claim bill in duplicate and consigner copy of goods carrier note within printedconditions overleaf.

y No survey report required bit in lieu thereof a certificate signed by Warehouse incharge / C&F agent to be submitted as per the format enclosed

FOR CLAIMS ABOVE RS. 25000/-

y Submission of all relevant documents like original copy of invoice.y Damage/ shortage/ non-delivery/ certificate issued within stipulated time limit of

six months.

y Claim bill in duplicate and consigner copy of goods carrier note within printedconditions overleaf.


46/72

MARINE INSURANCE

46

BASIC DUTIES OF THE ASSURED

If the consignment is in apparent sound condition prompt clearance from the docks

should be affected. Documents may be filed with the customs 15 days before the expected arrival

of the vessel and custom formalities completed easy clearance of cargo after landing. It is the

duty of the assured and his agent to take all necessary and reasonable measures to avert or

minimize a loss and to ensure that all rights of recourse against carriers / bailees are properly

protected, preserved and exercised.

1. In respect of goods arrived by sea;-

The assured or his agent is required:

y To claim immediately on the carriers, Port Authority or other bailees for anymissing packages.

y To apply immediately for a survey by the ocean carrier / Port Authority if any lossor damage be apparent and claim on them for actual loss or damage found on such survey.

y In respect of containerized cargo, the insured must ensure that the container andits seal are examined immediately on discharge from the vessel.

y If the container is delivered damaged or with seals broken or missing or with sealsother than those as stated in the shipping documents, the delivery receipt should be claused

accordingly and the insured should retain all defective or irregular seals for subsequent

identification.

2. In respect of goods arrived by rail:-

y The consignee should take examined delivery from the Railways of any packageswhich are outwardly damaged or appear to have been tampered with and obtain a certificate ofdamage and / or shortage.

y If examined delivery is refused, suitable remarks as to the condition of thepackages and contents thereof should be made in the railway station delivery book or on the

negotiable copy of the consignment note in case of dispatches by road or aircraft.


47/72

MARINE INSURANCE

47

y The consignee should issue notice of claims against the carriers within thestatutory time limits, as applicable.

Assured if not satisfied:

y From the insured point of view, if the insured is not satisfied with the report of theclaims adjuster and the amount of indemnity as decided upon by the adjuster and the insures can

make an appeal to the claims Tribunal.

y The claims Tribunal then collecting the necessary documents and hearing both thesides makes an award to the claimant. The claimant has to send a notice to the insurer conveying

the intention of proceeding to a tribunal, in the absence of which the insurer is not liable.

y For any delay on the part of the assured to make representation after a period ofsix months, has to satisfy the Tribunal for such a delay.

y If the time taken is more than one year then the insured has to make arepresentation before the Supreme Court and seek permission after convincing the Court by

giving the valid reasons for such a delay.

y The Tribunal has to make an award within reasonable time and so mush as isapplicable to the circumstances of the case.

y The insured can either take the reward or leave it.y In case he does not accept the reward of feels that it is not adequate, can always

make an appeal to the High Court and then the Supreme Court.


48/72

MARINE INSURANCE

48

CHAPTER VII


49/72

MARINE INSURANCE

49

The risks covered under ICC

Institute Cargo Clause (ICC)

The risks that are covered under marine insurance policies have been classified into

three categories, better known as Institute Cargo Clause (ICC).

These are called the ICC (A), ICC (B), and ICC(C)

y The risks covered by the ICC(C)are-Those where the damages of loss of the subject matter is attributable to the following

reasons:

y Overturning or derailment of land conveyance.y Fire or explosion.y Discharge of cargo at the port of dispatch.y The vessel being grounded, stranded upset or sunk.y Collision of the vessel with any other object other than water.y The loss or damage is caused by-1. Throwing overboard, abandonment or discard of the ship.2. General average sacrifice.3. The general average and salvage charges incurred to avoid the loss from

any causes except for those excluded.

a) Liability arising out of the contract of affreightment under both toblame collection clause.

This Clause covers major casualties during the land or sea transit and tends to be used for

cargo that is not easily damaged like scrap steel, coal, oil in bulk, etc.

y The risks covered under the ICC (B) are-y Loss caused by lightning, earthquake and volcanic eruption.y The general average and salvage charges incurred to avoid the loss from any

causes except for those excluded.


50/72


51/72

MARINE INSURANCE

51

Case study

Insurance All Risks Cargo Insurance Fortuity Inherent Vice

Nelson Marketing International Inc. v. Royal & Sun Alliance Insurance

Company of Canada.

This matter concerned damage to three separate shipments of laminated wood flooring

carried on three different vessels from Singapore to Long Beach. Upon arrival all three

shipments were found to be damaged by moisture. The major issue in the case was whether the

damage was due to a fortuity, and therefore covered by the all risks cargo policy, or whether it

was due to inherent vice or nature of the subject matter, an excluded peril. At the trial the

Plaintiff led expert evidence that the moisture was from exposure to rainfall during

transshipment and storage and the Defendant underwriters led expert evidence that the moisture

had been absorbed by the cargo while at the mills awaiting shipment and that the absorbed

moisture was released in the holds of the vessels and subsequently condensed onto the cargo.

The trial Judge agreed with the underwriter's expert and found as a fact that the moisture came

from the cargo in the holds of the vessels. However, he further found that the environments the

cargoes interacted with were abnormally and unnaturally amplified in the hold by conditions, the

causes of which, although not addressed by evidence, manifestly had nothing to do with the

inherent characteristics of the cargoes. The trial Judge therefore held that the damage leading

to the loss claim was not due to the inherent vice or nature of the cargoes, as pleaded by the

defendants, but rather was caused by the fortuity of being put in holds which substantially altered

the normal environment. The underwriters appealed. On appeal, the British Columbia Court of

Appeal stated that in order for the loss to be considered fortuitous the Plaintiff was required to

prove that the conditions in the holds of the three vessels was other than what might have been

expected as part of the ordinary incidents of carriage. The British Columbia Court of Appeal

reviewed the evidence and found that there was no evidence that the conditions in the holds were

exceptional such as to constitute a fortuity. The loss was accordingly held to be attributable to

the nature of the subject matter of the insurance. The appeal was allowed and the claim against

the underwriters was dismissed.


52/72

MARINE INSURANCE

52

CHAPTER VIII


53/72

MARINE INSURANCE

53

GLOBAL SCENARIO.

MAT(Marine, Aviation and Transport)

The French Insurers Association (FFSA) released its annual study on the French

Marine, Aviation and Transport market:

The global premium income (direct insurance, acceptances, in France and abroad)

decreased by 5% in 2006 at 2 billion. The 4 market segments record a decrease in their

premium income: 21% for space insurance, 9% for aviation, and 1% for marine hull and cargo

insurance. This drop in premium income can be explained by both the lower premium rates and

the depreciation of the dollar against the euro.

For the sole direct French business, the French MAT market represents 1.4 billion and

accounts for 8% of the total French commercial risks market


54/72

MARINE INSURANCE

54

Profitability of Marine Insurance A key question in Amsterdam

The International Union of Marine Insurance held its 2005 conference in Amsterdam

in mid September. The theme of the conference was Marine Insurance Essential to Global

Trade

In his opening speech the President of IUMI Mr de la Moninerie said that only 2.5 %

of the value of the world maritime trade is spent on marine insurance premiums. The seaborne

trade has risen in volume by 6.7 %. The level of the claims against marine insurers has fallen

in recent years and the price increases have resulted in a return to technical profit. The reason for

this has been a greater understanding of the need for technical underwriting. Mr. de la Moninerie

underlined the importance of underwriting discipline and that the past claims have to be taken

into account in pricing also when the claims have been paid by another insurer.

According to market statistics all lines of marine insurance have struggled for the past

seven years. At present the premiums in both hull and cargo exceed claims but after adding

the management and acquisition costs (approx. 30 %), the combined ratios are nearly 100 %,

especially in hull. The total gross loss ratio in 2004 for cargo was under 70 % and for hull

slightly over 80 %. The estimated total premium for 2004 was $16,4bn (for 2003 $16,6bn).

Claims for collisions, groundings, fire and explosions are rising. Ships are in general old

and there is a shortage of qualified personnel. Bigger ships are being built, which means more

risk. At the same time the reinsurance market is hardening due to recent natural catastrophes. In

his speech on managing Insurance risks for the international shipping market Lloyd s


55/72

MARINE INSURANCE

55

Performance Director Rolf Tolle warned the marine underwriters that the investment

capital will be directed to more attractive insurance and reinsurance lines, if they will not start

producing consistent profits. More efficient performance management i.e. monitoring of price

movements, catastrophe and accumulated exposures and use of hard historical data, as well as

skilled usage of various pricing tools are needed.


56/72

MARINE INSURANCE

56

Steep drop in Marine Hull Insurance Rates

SHIPPING companies are set to benefit from a steep drop in marine hull insurance rates.

And they don't have to shop outside the country for competitive rates. Following the de-tariffingof the marine (hull) rates in April 2005, the premiums payable are down by 30 per cent and

more.

Says Mr. V. Ramakrishna, Managing Director, India Insure Risk Management Services,

an insurance broker; "There has been a 30-40 percent drop in insurance premiums in this line.

Competition has now brought it to a level where you can almost buy one cover and take another

free."

Shipping companies are rather happy with the development.

Says, Mr. Rajat Dutta, General Manager Planning, Great Eastern Shipping Company, the

de-tariffing of the Marine Hull Insurance business is a positive development in line with global

practices. As regards GE Shipping, "we are yet to witness the impact of the de-tariffing as our

policies have yet not been due for renewal."

Mr V. Ramasaamy, General Manager, United India Insurance Company, confirmed that

the premium rates had gone down sharply for marine (hull) business. When asked if such a drop

would render the line unprofitable, Mr Ramasaamy said, "we take a call based on the individual

ratios of various companies, and the experience that we have with those vessels. Where we have

a good experience and our claims ratio is manageable, we are not averse to cutting rates to retain

the customer."


57/72

MARINE INSURANCE

57

United India Insurance has a marine hull portfolio of about Rs 50 crore.

Explaining the backdrop to the sharp cut in rates, Mr C.B. Murali, Chief Underwriting

Officer, HDFC Chubb General Insurance Company, said, "companies generally want insurance

as a package deal which covers everything from marine, property, to personal lines. They tend tosee the property (fire) business that is tariff as being very profitable to the insurance companies.

They therefore expect insurance companies to cut rates - when there is a de-tariffed regime, as in

marine hull segment now. This will become like the marine cargo business, which get very thinly

and aggressively priced


58/72

MARINE INSURANCE

58

CHAPTER IX


59/72

MARINE INSURANCE

59

FUTURE OF MARINE INSURANCE

The International Union of Marine Insurance held its 2006 conference in Tokyo,

Japan at the end of September. The common theme of the conference was Marine Insurance

essential to Global Trade".

Global trade is booming. The growth of the Asian economic area is increasing the world-

wide transportation of goods. As a result the demand for cargo insurance is gaining in

importance. Piracy, the threat of terrorism and the situation in Iraq have all had a significant

influence on insurers this year. The Ultra Large Container Ship has been one of the most

important developments to change the world for cargo insurers, since the invention of the

container.

Hence the future of Marine insurance is booming and the sky is the limit.

RECOMMENDATIONS

Marine insurance has been defined as a contract between insurer and insured

wherebythe insured undertakes to indemnify the insured in a manner to the insured thereby

ageed, against marine losses incident to marine adventure.Marine insurance should offer more

and more innovative products and concentrate on product development rather than only continuein the existing policies or rules and regulations which are outdated.A lot of awareness is needed

among the general public too in which the media can play amajor role and help enhance the

Marine Insurance sector to boom further.


60/72

MARINE INSURANCE

60

The Marine Insurance sector needs staff which is highly qualified and knowedgeable in

the field. Hence it is very important to retain this quality personnel by offering better pay

pacakge, allownaces, incentives and other benefits.

The rules and practises followed by the insurance companies with respect to claim

settlement are very rigid , lengthy , and time consuming. Hence measures should be adopted to

cut down these procedures and make them less tediious, so that the insured gets the claim settled

at an early date and avoid unnecessary hasels.

There are very few companies that offer Marine Insurance. Hence there should be added

competition to bring new products and services to the customer


61/72

MARINE INSURANCE

61


62/72

MARINE INSURANCE

62

ICICI LOMBARD

Marine Insurance

ICICI Lombard offers comprehensive commercial product line aimed at businesses of all kinds

and sizes.

Introduction

The coverage is generally defined by reference to clauses known as Institute Clauses. The ICC

(C), ICC (B) and ICC (A) Clauses define different levels of coverage against marine risks and

the cargo may be covered subject to any one of these clauses

The type of policy available is the S specific policy to cover single consignment or an open

policy. Offer products that match your business needs and provide you a perfect protection

cover.

Scope of coverThere are three types of covers:

Institute Cargo Clause (C) : Named Peril basis

Institute Cargo Clause (B) : Named Peril basis

Institute Cargo Clause (A) : offers the widest form of cover under Marine Cargo Insurance in so

far as it relates to the perils covered. ICC (A) is an unnamed perils clause

Sum InsuredThis is an agreed value policy. Normally, insurance is taken for CIF+10

Premium

Rate depends on factors like nature of cargo, scope of cover, packing, mode of conveyance,

distance and past claims experience


63/72

MARINE INSURANCE

63

Marine Export Cargo

Introduction

The coverage is generally defined by reference to clauses known as Institute Clauses. The ICC

(C), ICC (B) and ICC (A) Clauses define different levels of coverage against marine risks and

the cargo may be covered subject to any one of these clauses.

Premium



Significant Exclusions

This policy does not cover loss or damage due to willful misconduct, ordinary leakage,

improper packing, and delay, inherent vice, war, strike, riot and civil commotion.

Main Extension

On payment of additional premium, Insured can opt for certain extensions to the cover

provided under the policy.Extensions available are including War, Strike, Riot and Civil

Commotion and Duty Insurance Cover.


64/72

MARINE INSURANCE

64

Marine Inland Transit

Introduction

This Policy broadly covers the risk of physical loss or damage to the Insureds goods

(machinery, raw materials, finished goods etc.) during transit under a contract of affreightment.

Scope of cover

There are two types of covers:

Basic Risk Policy covers loss or damage to specified goods caused by fire, lightning,

breakage of bridges, overturning of vehicles, collision with or by carrying vehicle, subject to

specified exclusions.All Risks Policy covers all risks of loss or damage to specified goods,

subject to exclusions.

Premium




This Policy does not cover loss or damage due to willful misconduct, ordinary leakage,

improper packing, delay, inherent vice, war, strike, riot and civil commotion.

Main Extension

Extensions available include strike, riot and civil commotion


65/72

MARINE INSURANCE

65

Marine Hull

Scope of cover .

The purpose of hull insurance is to cover ship owners various insurable interests and

these include:

Hull & Machinery Insurance

Insurance of freight

Builders Risk policy

Loss of hire insurance

Loss of profit Insurance

The Institute Time Clauses form the basis for most polices used for insurance of vessels

and their machinery.

Sum Insured

It is an agreed value policy

Premium

The premium will depend on the following factors:

Type of vessel, trading limits, age, tonnage, technical aspects of machinery

Management and ownership considerations

Past claims experience

Valuation of vessel


66/72

MARINE INSURANCE

66

Type of cover required

Size of the deductible


The exclusions will depend upon the type of cover availed and would be governed by Institute

Time clauses and Institute Voyage clauses.

Excess

The policy will be subject to deductibles, which will depend of the type of cover, availed


67/72

MARINE INSURANCE

67


68/72

MARINE INSURANCE

68

The New India Assurance Co. Ltd.

HighlightsThis policy covers goods, freight and other interests against loss or damage to goods

whilst being transported by rail, road, sea and/or air. Different policies are available depending

on the type of coverage required ranging from an ALL RISKcover to a restricted FIRE RISK

ONLY cover. This policy is freely assignable and is basically an agreed value policy.

ScopeTransportation of goods can be broadly classified into three categories:

y Inland Transporty Importy Export

The types of policies issued to cover these transits are:

For Inland Transit:

Specific Policy - For covering a specific single transit

Open Policy -For covering transit of regular consignments over the same route. The

policy can be taken for an amount equivalent to three months dispatches and premium paid in

advance. As each consignment is dispatched, a declaration giving details of the dispatch

including GR/RR No. is to be sent to the insurer and the sum insured gets reduced by the amount

of the declared dispatch. The sum insured can be increased any number of times during the

policy period of one year;

Special Declaration Policy - For covering inland transit of goods wherein the value

of goods transported during one year exceeds Rs.2 crores. Although the premium for the

estimated annual turnover [i.e. the estimated value of goods likely to be transported during the

year] has to be paid in advance, attractive discounts in premium are available.


69/72

MARINE INSURANCE

69

Multi-transit Policy - For covering multiple transits of the same consignment

including intermediate storage and processing. For e.g. covering goods from raw material

supplier's warehouse to final distributors godown of final product.

For Import/Export

Specific Policy - Forcovering a specific import/export consignment.

Open cover - This policy which is issued for a policy period of one year indicates the

rates, terms and conditions agreed upon by the insured and insurer to cover the consignments to

be imported or exported. A declaration is to be made to the insurance company as and when a

consignment is to be sent along with the premium at the agreed rate. The insurance co. will then

issue a certificate covering the declared consignment.

Custom duty cover - This policy covers loss of custom duty paid in case goods

arrive in damaged condition. This policy can be taken even if the overseas transit has been

covered by an insurance company abroad, but it has to be taken before the goods arrive in India.

Add on coversInland transit policies can be extended to cover the following perils on payment of

additional premium:

SRCC - Strike, riot and civil commotion (including terrorist act)

FOB - Where the inland transit is required to be extended to cover the goods till they are

loaded on board the vessel, this extension can be taken.

Export /Import policies can be extended to cover War and /or SRCC perils on payment of

an additional premium.


70/72

MARINE INSURANCE

70

How to claim?The following steps should be taken in event of a loss or damage to goods insured:

y Take immediate steps to minimize loss.y Inform nearest office of the insurance company or claim settling agent mentioned

on the policy.

y In case of damage to goods whilst on ship or port, arrange for joint ship survey orport survey.

y Lodge monetary claim with carrier within stipulated time period.y Submit duly assigned insurance policy/certificate along with the original invoice

and other documents required to substantiate the claim such as :y Bill of Lading / AWB/GRy Packing listy Copies of correspondence exchanged with carriers.y Copy of notice served on carriers along with acknowledgment/receipt.y Shortage/Damage Certificate issued by carriers.y Survey fees are to be paid to the surveyor appointed by the insurance

company. These fees will be reimbursed along with the claim if the claim is otherwiseadmissible.


71/72

MARINE INSURANCE

71

CONCLUSION

With effect from 1st

January, 2005, all the insurance companies have come under the

detariffing regime. With the abolition of tariffs, the Tariff Advisory Committee (TAC) is

functioning as recommender body. Though it has been effective from 2005, it is actually been

implemented only now recently and the customers are reaping the benefits of the same.

Also the insurance premium has been dropped by more than 50% which has proved to be

a major boon for the ship owners.

The challenges that lie ahead would also be in terms of training the people working in the

insurance industry since after detariffing each and every insurance company have their own way

of calculating the premium amount.

The marine insurance helps the seafarers who are exposed in the worst kinds of dangers

and unknown risks such as sea conditions, pirates, war, weather, diseases, spoilage etc. Hence

marine insurance provides financial support to kith and kilns of these seafarers.

Therefore in future, the insurance companies will have to move toward value creation and

also listing on the stock exchange wills step in the right direction.

As of now, the public as well as the private sector Insurance companies are doing a

fantastic job in serving the shipping industry. Hence they need to be more aggressive to survive

in the competitive market.


72/72

MARINE INSURANCE

BIBLIOGRAPHY

Claims Management

ICFAI UNIVERSITY

Insurance underwriting Vol. III

ICFAI UNIVERSITY

Insurance Products Taxmann

Indian Institute of Banking and Insurance

NEWSPAPERS

THE CHRONICLES

THETIMES OF INDIA

DNA MONEY

WEBSITES

www.citehr.com

www.insuremagic.com

www.admiraltyguidelaw.com

www.timesofindia.com

www icicilombard com