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What are the fundamental operational aspects of the international market for marine

insurance?

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Submission date: 22/01/2023

What are the fundamental operational aspects of the international market for marine

insurance?

Brief analysis of the fundamental operational aspects of the international market for

marine insurance

A marine insurance policy protects cargo boats, ships, and terminals from damage and

loss while they are being transported. It is usually necessary throughout import and export

trade procedures to comply with various nations' stringent regulatory requirements (Markets,

2022) . Thus, when a trade is conducted by sea, there is a risk involved, and Marine Insurance

is used to mitigate that risk. In addition, the responsibility of consignment from warehouse to

warehouse is covered by a marine insurance policy, which does not only cover maritime

risks.

Aims and objectives

Marine Insurance is a critical component of the international market for risk

management in the case of tragic events such as property and environmental damage,

accidents, and loss of life. Its purpose is to reduce a policyholder's financial loss in the case of

an accident, natural disaster, or other disaster. Ship owners, cargo owners, and charterers, for

example, all have marine insurance policies.

Methodology

This study is conducted by evaluating publications produced by previous academics

on the core operational features of the worldwide market for marine insurance. Marine

insurance, it is obvious, is a century-old assistance to the conduct of sea trade that has

alleviated some of the financial heavy repercussions of ship owners and seafarers, buyers and

sellers of commodities, enterprises, and properties being destroyed or lost as a result of

different high-water dangers.

Chapter One

Introduction

Maritime services such as the transhipment of processed goods, unpolished oil,

products made from petroleum, petroleum and natural gas that have been liquefied, and

chemicals generate revenue and benefit the economy of a nation for a wide range of

individuals, businesses, and multinational corporations. Given the maritime industry's

economic importance on a country, the money involved, and the financial risks, every

maritime voyage should be covered in case of an unpleasant incidence or danger at sea.

As a result, expected hazards are protected with marine insurance before or at the start of a

journey to assure indemnification in the event of an unanticipated situation. In the event of a

mishap at sea, the insured party must promptly submit a claim with the insurer(s) who

provided the marine insurance policy for indemnification. This is the only legal and practical

way to recover from any misadventure. As a result, marine insurance continues to be an

excellent risk cover. This has a significant impact on the future of marine enterprises and

activities.(Oyeniyi, 2016)

In case of the loss of a ship and/or cargo, this insurance will guard freight companies

and cargo owners. It also aids in risk management in the event of an unfavourable incidence

including an accident, property and environmental damage, or casualties.(“Marine Insurance |

Maritime Industry Knowledge Centre,” 2018)

Marine Insurance

This is an arrangement in which the underwriter accepts to compensate the covered in

the way and to the mark specified regarding maritime damages or losses suffered as a result

of participation in a nautical adventure.(“THE MARINE INSURANCE ACT, 1963,” 2012.)

Maritime coverage does not represent a new type of insurance; it has been around for a

lengthy moment. Aside from it though, it has changed over time as trade has grown. Maritime
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insurance closely relates to international. Vessels transfer commodities across different areas

that forms part of the exchange. There is a great number of risks with this method goods

transportation from one site to another.(“What are the Principles of Marine Insurance –

Marine Cargo Insurance Article By Reliance General,” n.d.)

Mixed sea and land risks

This can be represented through the use of trade to safeguard the insured from inland

waterway losses and any other risks on land that may occur as a consequence of a marine

travel. Also during ship construction, launching, or any other nautical adventure covered by a

marine policy.

The English Marine Insurance Act, 1906

Under this contract, maritime insurance is described as "a pact with an insurer

committing to compensate the covered in the manner and in the amount decided upon,

regarding maritime damages, that is, damages received from marine adventure."(Section 1 of

the Act of 1906) (Moune, 2012).

Principles of marine insurance

Contribution, Indemnity, Utmost Good Faith, Proximate Clause, Subrogation, and

Insurable Interest forms the core essentials in all property protection contracts which are

derived from the Marine Insurance Act of 1963*. Marine coverage experts must be familiar

with the Act and adhere to these Philosophies whereas negotiating agreements and settling

entitlements under agreements.(“Marine,” n.d.)

1. Protection and indemnity insurance

A Protection & Indemnity club covers fluid dangers that conventional insurers are

unwilling to cover, whereas a maritime coverage agency covers "hull and machinery" for

vessel owners and "cargo" for cargo owners. A basic P&I insurance covers a carrier's third-

party risks for damage to commodities during transit; (John Dunt) war dangers; (Michael D
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Miller) and the possibility of environmental harm such as oil spills and pollution.(Bazvand,

2016)

2. Insurable Interest

The concept of insurable interest in maritime insurance is that an insured or recipient

must be placed at danger of a significant monetary loss if the unpredictable incident insured

against occurs. The insurable interest separates indemnity insurance from gambling and

meets the indemnity principle's criterion. This is predicated on the notion that the assured

must be able to incur a loss for which he claims indemnification. For all intents and purposes,

a marine insurance contract with no insurable interest is null and invalid.(Oyeniyi, 2016)

3. Utmost Good Faith

It is the vessel owner's or shipment owner's responsibility to provide the insurer with a

declaration of facts, anticipations, and beliefs prior to or at the moment when the contract is

finalized.(“The Marine Insurance:Utmost Good Faith,” n.d.)

4. Subrogation

The right of one individual to act in behalf of another and to demand all of the other's

entitlements, despite the fact that they have been enforced, is known as subrogation."

Because repossession forms the result to the indemnification notion, the right of repayment

pertains exclusively to coverage arrangements that are compensation agreements.(“Marine,”

2018)

5. Proximate Cause

When there is no order of succession in time, and there are two contemporaneous

causes of a loss, the most efficient one must be considered the proximate when the damage

caused by each cannot be differentiated.(Hall, 1902)

6. Contribution
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At the same time, many insurers could cover the same risk. In that case, it is

preferable to assure not only that the covered gets simply an indemnification, but as well as

that whatever loss is allocated fairly between all of the insurers involved. Contribution is a

mechanism for evenly distributing the cost of claims among insurers, for that everybody has

some responsibility.(“Marine,” 2018).

INTERNATIONAL TRADE, MARITIME TRANSPORT AND INSURANCE

As soon as international trade got established, people involved realized they needed to

defend themselves against the loss of their products. Indeed, early merchants participating in

this trade were gambling with their money, never knowing if they would get their money

back. As a result, it became critical for them to be compensated for any losses they could

suffer from time to time. The notion of insurance was formed at that time, and as time passed

and the importance of foreign trade rose, so did the importance of maritime insurance.

(Moune, 2012)

Procedures to insure under marine insurance

Obtaining a marine insurance coverage is a relatively basic and straightforward

process. Although the services of an insurance broker are not usually necessary, people who

are unfamiliar with marine insurance practice may benefit from their assistance.

1. Filling out the form

2. Getting a quote from the insurance company

3. Payment of premium is required.

4. Policy/Issuance of a cover note(“Marine insurance,” n.d.)

1. Filling out the form

A person who wants to get a marine insurance coverage will fill out a form provided by the

insurance provider. The following information should be included on the form:

 Name, address, and business of the proposed

 Name of the ship

 Full details of the cargo

 The subject matter of the insurance

 Amount or sum to be insured

 Type of voyage or the period of the policy.(“The Procedures of taking Marine Insurance

Policies - QS Study,” 2018)

2. Getting a quote from the coverage company

Risks that are to be insured are evaluated by the maritime coverage provider after

receiving the form of declaration. The damage covered must be discovered in the

circumstance stated on the declaration form before the amount of imbursement to be paid by

the covered is stated, as well as the stamp fee, after determining the level of risk involved.

These calculations are performed upon the backside of the declaration form which the

covered completes.(“Procedure involved in taking out a Marine Insurance Policy,” 2017)

3. Payment of premium is required

This fee may differ from one firm to the next and from one nation to the next.

Payment for a marine insurance policy can be paid in any currency as long as the exporter

verifies that he is responsible for all insurance costs associated with the cargo in question.

(“Procedure for Obtaining Marine Insurance Policy,” 2019)

4. Policy /Issuance of a cover note

After the payment is complete, issuance of a cover note by the insurance company in

line with the insurer's policy restrictions. Details such as the name of the insurance company,

the sum covered, the policyholder's name, the name of the vessel, the ports of destination and

departure, the premium rate, and so on are generally included on the cover.(“What are the

Steps to be taken for Buying Marine Insurance Policy?,” 2017).

CHAPTER TWO

Marine insurance contract

In the event of international trade, there are many forms of sale contracts between the

buyer and the seller. Who is liable for acquiring the Insurance contract depends on the form

of the selling deal. The following are the many forms of sales contracts:

 Cost, Insurance & In Freight (C.I.F. Contract)

 Cost and Freight (C&F Contract)

 Free on Rail (F.O.R. Contract)

 Free on Board (F.O.B. Contract)

Free on Board (F.O.B. Contract)

This is type of cover is included in contracts of sale to indicate culpability for things

that are destroyed during transit. When items are transported FOB, the vendor's

accountability stops when a transporter bears the goods’ custody, or, in the context of ocean

shipping, once the item is securely put aboard the ship or a bill of lading is supplied. The

client is obligated to insure the products from that point forward.

Free on Rail (F.O.R. Contract)

This is identical to free on board, with the exception that it only applies to domestic

commerce and not international trade.(“Marine-Insurance.pdf,” 2020)

Cost, Insurance & In Freight (C.I.F. Contract)

A CIF contract covers the cost, coverage, and freight fees as part of the price. A CIF

contract necessitates the vendor to secure the goods, send them to a shipping firm, organize

delivery, and present a bank with the bill of lading, insurance policy, invoices, and origin

certificate.

Cost and Freight (C&F Contract)

The invoice includes freight charges but does not include the cost of insurance. In this

instance, the customer purchases the marine insurance.(“Marine-Insurance.pdf,” 2020.)

Marine insurance market

For many years, the international marine cargo industry has been very competitive,

with premium rating levels maintaining low despite the majority of insurers' profits

progressively falling. Recent attrition losses and weather-related claims in North America, on

the other hand, have focused marine insurers' attention on their failing cargo portfolios, which

had always been lucrative up until recently.(“Global Marine Cargo Insurance Market

Insights,” 2018).

Types of marine insurance

It is classified according to types, supply chain, end users, and physical region. There

are four types of insurance: insurance of cargo, insurance of hull and machinery, maritime

liability coverage, and offshore/energy insurance. Based on the delivery network, marine

insurance is separated as distributors, retail brokers, and others. It is organized into 4

geographical areas: Europe, Asia-Pacific, North America, and Latin America and the

Caribbean.(“Marine Insurance Market Size, Share & Industry Analysis 2028 | AMR,” 2019.)

Cargo insurance

You bear the risk of mishandling the goods you own at any step along the process,

whether at the dock or on the vessel. The items may be lost, misplaced, or damaged as a

result of this. As a result, maritime cargo insurance will safeguard your interests as the cargo

owner by covering your damages in exchange for a sufficient premium payment.(“Marine

Insurance - Marine Insurance Explained | TFG 2021 Shipping Guide,” 2015)

Hull insurance
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The most common kind of insurance is Hull and Machinery (H&M), which covers the

vessel and her machinery, as well as any equipment on board other than cargo that the vessel

needs to accomplish her job.(Seltmann, 2006).

Freight insurance

If the commodities are destroyed during shipping, the carrier may suffer

transportation arrears; hence, the coverage will focus on freight reimbursement.(“Marine

Insurance | Meaning, Types, Benefits & Coverage | Drip Capital,” 2014)

Liability insurance

A liability marine coverage policy covers any liabilities that arise as a result of your

vessel hitting or wrecking, as well as any attacks initiated by you.(“Marine Insurance -

Marine Insurance Explained | TFG 2021 Shipping Guide,” 2015).

Marine Policy

This document that serves as proof of a marine insurance contract. It provides specific

data for example name of the insured, nature of the products, and so on. These were already

recognized. The hazards covered are mentioned specifically in the policy.(“Marine

insurance,” n.d.)

Types of marine policy

Voyage policy

This policy insures the transfer of cargo from one location to another and may have a time

constraint.(“What is Marine Cargo Insurance?,” 2020).

Valued Policy

A valued marine insurance policy differs from a shallow ocean insurance policy in

that a valued maritime insurance plan is the total opposite of an open-ocean coverage policy.

The policy document determines and specifies the value of the merchandise and cargo in
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advance, rendering the worth of the remittances clear in the event of damage to the freight

and shipment.(“Different Types of Marine Insurance & Marine Insurance Policies,” 2019)

Time policy

The contract to insure is the topic of this insurance for a set length of time. The insurance

coverage will typically begin at a time and date stated in the policy and end at a different time

and date specified in the policy.(“TIME AND VOYAGE POLICIES |,” 2015)

Mixed policy

This type of policy covers the journey and the time spent on board as well as the time spent in

port following arrival.(“Welcome to Marine Insurance Services!,” n.d.)

Port risk policy

This sort of maritime cover is obtained to guarantee a ship’s safety while moored.(“Different

Types of Marine Insurance & Marine Insurance Policies,” 2019)

Conclusion

The increase of long-distance maritime trade necessitated the establishment of marine

insurance. However, I can confidently state that marine insurance is used to carry out the core

operational parts of all maritime trade and marine operations on land through warehouses.

This aids in the promotion of sea commerce and the mitigation of all losses incurred

throughout the chain of supply of commodities over the high seas, as well as the

indemnification of overall resources associated with its operation in the worldwide market.

International Union of Marine Insurance

International Union of Marine Insurance