Archive for Boat Insurance

Marine Insurance Explained

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.

Marine Insurance in London

London remains to this day the global capital for placing Marine Insurance risks

Insurance Blog asked Insurance Blogger to get down to the jetty and investigate the market for marine insurance…

 

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.

Boat Insurance is a London based marine insurance brokerage and underwriter at Lloyds, which can provide all classes of marine insurance.

Originally published online for Insurance Blog by Insurance Blogger

A Brief History of Insurance: Part 8 Lloyds and World Insurance

A Brief History of Insurance:

Part Eight: The emergence of Lloyd’s as the worlds major insurance organisation:

In the previous article in this series we learnt about the humble beginnings of Lloyd’s as a relatively small coffee shop on Tower street. Whether it was an incredible piece of foresight or simple luck Lloyd developed a very specific clientèle of sailors, ship owners and merchants for boat insurance and marine cargo insurance risks.

Lloyds wasn’t the only coffee shop to do insurance business but it set the standards. In 1748 nearly one hundred houses including the famous coffef houses of Jonathan’s, Garraways and others were destroyed by a fire that ravaged Cornhill and in which scores of people perished and damage to the exent of £200,000 (nearly 200million in todays money) was caused. This event and another in the Cornhill when it was again destroyed by fire in 1765, left Lloyds in a prominent trading position.

It is evident however, that Lloyd cultivated this customer base by providing reliable and regular updates on the shipping news to those that visited his coffee house and soon Lloyd’s had established itself as a focal point within the very heart of the Shipping industry.

It was therefore inevitable that the coffee shop also quickly became a second home to a number of early insurers seeking to business with the Lloyd’s clientèle. Similarly it soon became accepted that if you were a merchant seeking insurance, then Lloyd’s was always a recommended first port of call. In fact within just three years Lloyd’s had grown to a level of importance and popularity that a new location was required and Lloyd moved his coffee shop to Lombard St – where it would remain for the next 83, years long after Lloyd himself had passed away.

As Britain established itself as a leading economic power through the exploitation of the slave trade, the shipping industry was at the heart of this economic boom. As slave trading was a high risk trade (1053 slave vessels are recorded as having been lost between 1689 and 1807) the insurers of Lloyd’s also found themselves in high demand.

Lloyd himself died in 1713 however his legacy remained strong.

Lloyds Fire at the Royal Exchange

In 1774 when the participating members of the insurance arrangement formed a committee and moved to the Royal Exchange in London, they became The Society of Lloyd’s. The Society’s objectives included the promotion of its members’ interests and the collection and dissemination of information amongst members helping them to further dominate the marine insurance industry which indeed they had created.

The first Lloyd’s act was passed in parliament in 1871 and it was this act that gave the Society a firm footing both  commercially and legally and it continued to remain at the heart of the insurance industry, growing in tandem with the industry to eventually become one of the most powerful and well respected organisations in the world today.

In fact in many ways very little of Lloyd’s of London then changed for almost a century and this is even true of their motor insurance risks department. The membership of the society, which was made up in the main of market participants, became the market specialists. Lloyd’s continued to grow, and it’s members continued to flourish, mostly due to the force of economics. Insurance moved from being desirable to essential across just a few centuries. If you were in shipping you needed marine insurance. If you needed marine insurance you got it from Lloyd’s. It was as simple as that.

marine insurance

However, eventually the bubble had to burst. Just under a hundred years after the first Lloyd’s Act had been passed, the membership of Lloyd’s was realised to be too small for the risks that it was underwriting. The Cromer report commissioned in 1968 advocated opening membership options to both non-market participants and crucially to non-British subjects for the first time.

The insurance industry had become a global industry and Lloyd’s had to adapt to survive. In the next article in this series we shall explore the rise of insurance in the US and how they too had to adapt to the globalisation of the industry within the twentieth century.

A Brief History of Insurance: Part 7 Lloyds and the London Market

A Brief History of Insurance:

Part seven: A small coffee shop called Lloyd’s

Welcome back to this series which aims to briefly plot the key times and places in the historical journey of insurance, from the earliest Chinese civilisations some seven thousand years ago right through to the modern day. As we discovered in the last article in this series, the seventeenth century was of major importance to the development of insurance.

The tragedy of the Great Fire of London saw the first insurance company The Fire Office appear and soon after a number of competing fire insurers had arrived including Sun Fire Office, which we now know today as RSA – one of the largest insurers in the word.

We also discovered that the era was one of great advancement in the field of mathematics, which led to the emergence of first true development of actuarial systems and relatively sophisticated risk management models.

Of course no history of insurance would be complete without reference to Lloyd’s of London and it was during this same period of innovation within insurance, that Mr. Edward Lloyd opened his first coffee shop in Tower Street, London.

Lloyd's 1743

It needs to be mentioned that the coffee shop of the seventeenth century was a far more important venue within a society than your local Starbucks or Costa Coffee is today. In fact at this time the coffee shop was a relatively new phenomenon in Europe.
Whilst they has been in existence in the Muslim world for much longer, they had only recently appeared within the West.

Originally thought to have been introduced to Europe via the Kingdom of Hungary, the first documented coffee house to open in Europe was in Venice in  1645.

The first English coffee house, The Grande Café, opened in 1650.
Less than a century later there  were 551 coffee houses in London alone.

A fundamental reason for the success and popularity of these coffee shops was that they were great social levellers. They welcomed men from all levels of society and as a result they became synonymous with equality, republicanism and the ideals of a free market.
As such it was almost inevitable that the coffee houses of the late seventeenth century were to become vital hubs in which to discuss politics, the current affairs of the day and of course business.

It was 1688 when Edward Lloyd first opened his own coffee house in Tower Street, London.
Capitalising on the current growth in popularity for coffee houses across the city, Lloyd was able to carve a strong niche  in the city by providing regular and reliable news from the shipping industry.
Soon Lloyd’s of London had a vibrant and faithful community of sailors, merchants and ship owners visiting the coffee house on a daily basis.

It was not long before  Lloyd’s of London had become synonymous with the shipping industry and establishing itself as the key meeting place to discuss business in the shipping world.

In the next article within this series we shall look at how boat insurance and the shipping industry became intrinsically linked and how Lloyd’s of London developed from a humble coffee shop to one of the major organisations in modern insurance.

A Brief History of Insurance: Part 4 Genoa and the first ever single independent insurance contracts

In this the fourth article on Insurance Blog within this series exploring the origins of insurance we move to Medieval Europe and the invention of separate insurance contracts in 14th Century Genoa…

As you may recall from earlier articles within this series, both the Romans and the Greeks had contributed to the development of insurance, shaping it into the complex financial product that it is now quite considerably. However it was from the ashes of the Roman empire that we see insurance start to fully develop.

As we move through history and reach the medieval period which is universally acknowledged as beginning when the western Roman Empire fell in 471AD, we see the Guilds rise to prominence and amongst their functions is something remarkably akin to that of the early Roman Burial Clubs. However, they also provide rudimentary medical insurance, fire insurance, marine insurance and even personal accident insurance to their members as well as a whole host of other social and economic benefits.

In fact despite the fall of the Empire the insurance practices that have become part of every day life across Europe for Merchants, Noblemen and Serfs alike remain in place. With the importance of insurance now firmly established as a key element within any society with commerce at its heart, the varieties of insurance and the complexity of the products continues to develop throughout the Middle Ages.

Again it was Maritime insurance which proved to be the area which established itself as both the innovative and indeed original category of insurance. This is of course is easily attributable to the fact that at this point in history, the overwhelming driving force in any economy was the merchants of the sea. Boat Insurance developed more rapidly and technically than any other form of insurance at the time out of sheer economic necessity.

After the fall of the Western Roman Empire, a number of successful city-states developed to fill the vacuum created by the failure of Rome. These included Pisa, Milan, Venice and Genoa. Each of these mini- empires have a rich and fascinating history, but for the world of insurance, it was Genoa who would play the major role.

In fact Genoa is able to lay a fairly indisputable claim to be the home of modern insurance.
Genoa- Home of The Insurance Contract
It was here in the fourteenth century that we saw some huge landmark moments appear on the insurance development time-line. It is at this point in history that we start to see commercial insurance begin to establish itself as a product independent of investment. This is evident from both the inception and invention of insurance contracts which were neither included as a guild benefit, nor based on a loan.

The earliest ever recorded insurance policy discovered to date is believed to be between Amiguetto Pinello (the insurer) and Tomaso Grillo (the insured) and is dated the 13th February 1343. The contracts between the two parties are hugely important in that they mark the first steps away from what are now the ancient and archaic traditions of Marine Loans.

Whilst traditional marine loans of ancient Rome and Greece (and even Mesopotamia before them) had provided adequate coverage throughout the ancient and early medieval periods, as the commercial revolution that was rapidly spreading throughout the coastal micro empires of Italy and the Mediterranean grew, these archaic laws no longer succeeded in meeting the requirements of the modern ‘sedentary merchant’.

So the need for insurance to once again evolve led to the birth of the stand alone insurance contract.

A fascinating insight into the politics of the time is hidden away in this original contract. In fact much of the content of this original contract was necessarily fictitious. This fictitious wording was required to cloak the contracts within the phraseology of Roman Law, as at this point in history insurance contracts still had no legal standing Per Se.

In fact the work of these early pioneer insurers was constantly frustrated by existing clerical usury law and the insistence of those in authority that despite the legislation being out dated, it was relentlessly enforced.

It seems that there are more similarities than we could have imagined then!

In the next article within this series we shall look at post-renaissance Europe and perhaps arguably the most important period in the history of insurance ever – the 17th Century. This is where we see insurance arrive at what is now regarded as it’s modern day home – Lloyd’s of London.

A Brief History of Insurance: Part 2 Early Marine Insurance

A brief history of Insurance:

Part Two: Rhodian General Average and Athenan Maritime Loans:

OK, so in the first article in this series we discovered that whilst those amazing Chinese chaps were out inventing everything and anything, they put together the worlds first ever risk management systems. We also discovered that it was a thousand years or so later that a rather brilliant Babylonian, a first dynasty king called Hammurabi came up with something that many scholars consider to be the first recorded form of monetised insurance.

This system was in fact set to become incredibly wide spread largely down to the Babylonian’s sphere of influence within the young, growing markets of commerce within early history.  The practice of paying what we would now consider an insurance premium, to cover the cost of a merchant’s cargo should it be lossed due to theft or accident on the high seas, had become common place across the mediteranean in its many fledgling cultures.

As the cultures of the meditaranean developed and in particular that of Ancient Greece, so we see further complexities within insurance as a financial product within these cultures and also their growing importance within the daily lives of members of these societies.

The inhabitants of Rhodes were to establish a rule of general average amongst their merchants and traders. In essence this was very much in the same vein as a general mutual insurance fund, a term many of us are more familiar with. This general average was created to allow groups of merchants to pay to insure their goods which were to be shipped together.  Under this very community minded statute, should a merchant be unfortunate enough to have his goods jettisoned due to reasons of sinkage or storm, then each of the merchants whose cargo was also on the journey would share the cost of this loss  by paying a premium. Of course the term and principals of  general average are still applicable in many modern marine insurance policies today.

It was during this period in history that the concepts of insurance and risk management really began to beccome more refined and complexities within risk calculations started to emerge.  And it all started with boat insurance.

The ancient Athenians created what was termed a maritime loan. This loan provided advanced money for voyages and repayment  was cancelled if the ship was lost at sea, much like the laws in the older Codes of Hammurabi and indeed the maritime loans of modern times. It was circa the fourth century that the rates of interest for loans differed accordingly to the relative ease or danger of the passage. The time of the year, the prevalent weather conditions, the route to be taken, even the socio politcal enviroment were all taken into account, which would suggest a level of intuitve pricing for risk begining to very much resemble modern day insurance.

As with so many elements of modern society, we  see that what began in Mesoptamia, was once again absorbed and developed by the Greeks, and as is true with many other facets to civilisation, was so then absorbed and further explored within the Graeco-Roman and then Roman cultures. Insurance was to be no different and as other lines of insurance developed in our modern era out of marine insurance so it was to be the case in the ancient empires of Greece and Rome.

In the next installement we shall explore this further as we discover how the Greeks and Romans introduced the concepts of Health Insurance and Life insurance to their civilisations.