Marine insurance is the oldest form of commercial insurance, indeed insurance under contract, and it is little wonder that it holds great fear with students studying for their ACII, due to the complete range of risks that it covers from physical property to transportation liability and the specialist marine cargo goods in transit covers.
Despite the unusual and monopolistic ways in which marine insurance is still delivered to the global market, the actual risks themselves are very well defined and easy to understand, mostly due to time honoured knowledge and the Marine Insurance Act of 1906 which set the standard for all modern underwriting.
Insurance Blog asked Insurance Blogger to get down to the jetty and investigate the market for marine insurance…
Hulls, Liability and Marine Cargo Insurance
Marine insurance was the very first type of insurance contract and has a fascinating and complex history dating back to the earliest coffee shops in London in the Seventeenth century.
Marine insurance is designed to cover watercraft of all shapes and sizes, from the smallest dinghy to the largest passenger liner, however the term as opposed to boat insurance, usually refers to the coverage for larger ocean-going vessels and ships.
The cover has no geographical limits and therefore can insure any vessel under any flag in any part of the world.
The marine market covers a wide variety of risk types including tugs, ferries, liners, cruise ships, dredgers, oil rigs, oil tankers, cargo vessels, drilling platforms, heavy lifting vessels, barges, fishing fleets, motor cruisers, salvage vessels and yachts to name just a few.
Marine insurance has three distinctive risk groups, cover for which can be bought separately or together if necessary and is available for small boats through to ocean-going vessels:
a) Hull and superstructure cover
b) Liability insurance
c) Marine cargo insurance
Hull and Vessel Property Cover
The hull and superstructure cover covers the physical vessel itself against a list of maritime perils and is subject to what is called the ‘Institute time clause’.
At the turn of the twentieth century the Institute of London Underwriters, a collective of Marine Insurance companies and the Lloyds market, agreed and introduced standardised time-tested insurance clauses, and these have been used globally for marine insurance ever since.
The clause is written in plain English and is attached to a policy that contains no information on the conditions of cover itself. It sets out details of the specific marine risk to be covered and the underwriters agreed proportion of that risk. The time clause usually applies to a twelve month period but can be bought for a single voyage.
The cover always extends to both physical damage to the vessel and collision liability.
The insured ship or boat is covered for loss or damage for a list of maritime perils called ‘perils at sea’, fire, explosion, violent theft, piracy, jettison, earthquake, tsunami and volcanic eruption.
Material damage to the ship is also covered for landing and docking equipment, aircraft, accidents in loading and unloading cargo, latent defects and negligence of the officers and crew.
Liability At Sea
However most policies to this day for larger vessels, only cover three-quarters of the risk for collision liability and damage to other vessels. The other quarter is often provided by specialist P & I clubs.
In 1885 marine insurers found themselves unable to cover some of the emerging liabilities of shipowners. Protection and Indemnity associations, known as P & I clubs which had been formed earlier to break the monopoly of the marine insurance market, started to take on these ‘excess of loss’ risks.
The scope of the P & I cover is wide, but in addition to the cover for collision liability provides protection for loss of life and personal injury claims, amongst other crew related benefits.
The associations do not charge a premium as such, but the shipowners pay an annual membership fee into a common pool.
Other marine liability insurance cover that is available are charterer’s liability cover, ship repairer’s liability cover and mortgagee’s liability cover. Liability insurance is often placed in the open market.
Marine Cargo Insurance
The third major marine risk is that of cargo insurance.
Like hull cover the polices are governed by Marine Institute and Trade Association clauses, the main ones which are known as the ‘A,B and C clauses’.
The ‘A’ clause is an ‘all risks’ policy in as much as it covers all damage and loss to the cargo at any stage in its journey.. The other clauses cover named perils only, but can often offer much wider cover for specific risks such as piracy at the Horn of Africa.
Cargo is transported either ‘Free on Board’, which means that the seller is responsible for insuring the cargo until it is safely landed on the ship, or Costs, Insurance and Freight (CIF), which puts the onus of responsibility for covering the safe passage of the cargo on the buyer.
Many people are interested in the safe passage of marine cargo and the level of insurance, which today also includes aircraft transportation.
Those interested include the manufacturer or seller of the goods being shipped, shipping agents, freight forwarders, hauliers, shipping companies, intermediary consignees, selling agents and customs officers at both ports of entry and departure.