Marine Insurance: Types, Features, Importance & Principles

The sea has always been a hotbed for commerce, and cities having ports have been successful because they have access to the sea. The sea brings great riches and opportunities, but it also brings dangers, threats and perils. 

Thus it is important that a trader is always prudent and insures his goods while they are on voyage.
This article aims to provide you with a 360-degree understanding about marine insurance, so you are confident for your next voyage.

Let us understand certain important subjects about marine insurance:

• Definition of marine insurance
• What is marine insurance
• Types of marine insurance
• Types of Marine Insurance policies
• Features of marine insurance
• Principles of marine insurance
• Importance of marine insurance
• Claims process and documentation
• Marine insurance coverage and exclusions
• Marine insurance companies in India

Definition of marine insurance

As per The Marine Insurance Act, 1963, Marine insurance is a contract whereby the insurer indemnifies the insured, to the extent mentioned within the terms and conditions of the marine insurance contract/policy.
Let us understand this definition in more details below

What Is marine insurance?

Marine Insurance is an insurance policy that covers against the risks and perils that a trader is faced with. The policy can cover various risks like:

• Storms
• War
• Strikes
• Cargo jettisoning
• Collisions
• Fire
• Transportation risks, among others

The insurance company will indemnify the trader in exchange for a fee. This fee is called a premium. The premium may either be charged per voyage or per year, depending on the nature of client and their line of work. A trader must insure his goods as the sea brings with it a level of uncertainty.

Types of marine insurance

Freight insurance

A Freight Insurance policy covers the loss/damage of freight during voyage. The shipping company or trader will have his freight insured and covered in the event of an accident.

Protection & indemnity insurance

This is a type of insurance that is generally provided by a P&L Club. The insurance is provided by and to the club’s members. Members of these clubs usually include shipping companies, charters, and vessel owners. Coverage includes collisions, freight coverage, civil liabilities, cargo, fires, storms, wreckages, etc

Hull insurance & machinery insurance

This type of insurance covers the hull of a ship, which is the main operational part of a vessel. It also covers against damages to any machinery and furniture within the hull of a ship. Coverage includes damage to hull, machinery, furniture, freight, etc.

Marine cargo insurance

This type of insurance policy covers risks to your cargo. It is possible that your cargo can be damaged, mishandled, lost or compromised in any way. These mishandlings can occur during voyage or during transportation to and from the ship.

Liability insurance

A liability insurance policy will indemnify the ship owner against any liability arising out of crashes, collisions, pirate attacks, dangers to life of crew.

Types of marine insurance policies

Time policy

This is where generally the vessel/hull is insured for a specific period of time. Usually a Time Policy is taken for a period of 1 year. Mishaps occurring during this period are covered by a Time Policy.

Mixed policy

Under this policy, the insurance company has knowledge about the ships routes and decides to insure the ship or its items only during voyages to these pre-determined routes (and for a specific period).

Valued policy

A valued policy is where the insurance company writes the amount payable in the event of an incident on the policy copy. There is no ambiguity when it comes to the settlement amount.

Unvalued policy

This is where the settlement value is not pre-decided. The company decides on the settlement value later on. Due to this uncertainty, an unvalued policy is not a popular option among the shipping industry.

Voyage policy

A Voyage Policy only covers risks during the voyage. No transportation risk (to or from the port), warehousing risk, etc are covered under this policy. It is also called as a port to port policy.

Floating Policy

A trader may have regular shipping requirements and it may seem time consuming to buy a policy for each voyage. This is where a Floating Policy can help the trader. A trader will simply buy a Floating Policy from the company (for a particular amount) and inform the insurance company every time he makes a voyage. 

The trader will have to inform the company the time, date, voyage route, ship name, value of goods, etc before voyage.
The insurance company will enter these details in their system and provide a coverage from the voyage. 

Upon completion, the cover of the policy will be reduced to the extent of protection provided to the policyholder. The holder can use this same policy for his next voyage and so on.

P.P.I Policy

A Policy Proof of Interest (P.P.I) can be taken even at the absence of insurable interest in the property. These policies are also called as Wager Policies or Honored Policies as they cannot be enforced under the law. One should be very careful before partaking in such an agreement.

Block Policy

A Block policy is where coverage can be provided even if the goods are sent via either land or sea. This type of policy generally provides complete coverage from the point of dispatch (warehouse, etc) to the point of arrival.

Inland vessel policy

This policy covers voyages done on inland waters like rivers, canals, large lakes, etc.

Inland transit cargo policy

This policy covers all inland transit risks and provides indemnity to the policyholder. It is usually an end to end policy that overs risks from dispatch to delivery.

Port Policy

This policy only covers the risk when the insured vessel/goods is on the port. Coverage ceases to exist during voyage.

Composite Policy

This is where the trader will take multiple policies from multiple insurers. The risks of each insurer is pre-defined.

Fleet Policy

Huge shipping companies having massive fleets take this type of policy. Here, the insurer will insure the entire fleet of the shipping company under one policy.

Features of marine insurance

A Marine Insurance agreement will generally have the following mentioned features in common. There are certain exceptions, however by and large every contract should have these features:

Policy premium

Every policy will have a premium component to it. This means that the policyholder will need to pay a certain financial consideration to the insurer. In return, the insurer will provide indemnity to the policyholder.
Insurable Interest A person taking a policy should stand to loose financially if the goods he/she is insuring are destroyed or damaged. Insurable Interest insures that this happens. That being said, certain marine insurance policies do not need an Insurable Interest, they are called as Wager Policies or Honour Policies.

Formal proposal and acceptance

This means that there should be certain things explicitly mentioned on the policy copy, such as name of the insured party, name of the insurer, terms, voyage details, goods, sum assured, etc.

Enforced by law

All policies except Wager Policies are enforced by law. The holder and the insurer can both call upon the courts in case of a dispute.

Principle of  utmost good faith

The assured as well as the insurer should ensure that all policy details are correctly mentioned. There should be no falsification or cheating of any kind. If the principle of Utmost Good Faith is broken, the policy can turn void.

Principles of Marine Insurance

Marine Insurance is also governed under the general Principles of Insurance Like:

• Subrogation
• Proximate cause
• Good faith
• Insurable interest
• Indemnity
• Loss minimization.

Importance of marine insurance

Coverage: A Marine Insurance contract protects the assured in uncertain times.

Peace of Mind: The policyholder can sleep much better knowing that his shipment is insured against the various risks at sea.

Stability: An insurance policy will provide stability and continuity to a trader and his business operations.

Claims process and documentation

In the unfortunate event that you would need to file a claim, be calm. Rest assured that there is a process to be followed:

Step 1: Inform your insurance company immediately. Delays in informing are not ideal

Step 2: The company will send their designated surveyor to survey the damage

Step 3: Surveyor will make a survey report and hand it over to the company

Step 4: Company will reimburse the policyholder if the claim is genuine and in accordance with the policy terms

Documentation required at time of filing a claim:

• Original policy certificate
• Personal identification
• Duly filled claim form (you can get it from the company website)
• Copy of billing Lading
• Package list and original invoices
• Claim bill
• Any other port/carrier document that the company requests

Marine insurance coverage and exclusions

General risks covered under a Marine Insurance policy includes risks against:

• Sinking of vessel
• Fires and explosions
• Loading/unloading mishaps
• Lightning
• Breakout of war
• Pirates
• Natural calamities
• Earthquakes or Tsunamis

General Exclusions include:

Damages caused due to:

• Willful negligence
• Fraud or cheating
• Compromised packing of goods
• Damage caused while removing a wrecked vessel

Marine insurance companies in India

The following general insurance companies provided marine insurance related products and services in India:

• New India Assurance
• Bharti AXA
• Tata AIG
• Royal Sundaram
• ICICI Lombard
• United India Insurance
• HDFC ERGO