Assignment

On
Marine Insurance

Submitted To:
Md. Moniruzzaman Siddiquee
Course Instuctor
Insurance Management

Submitted By:
Iqbal Hossain
Class I. D. -857
16th Batch

INSTITUTE OF BUSINESS ADMINISTRATION

JAHANGIRNAGAR UNIVERSITY
SAVAR, DHAKA-1342

Date of Submission: October 15, 2009

 Marine Insurance
Definition: Marine insurance covers the loss or damage of ships, cargo, terminals, and any
transport or property by which cargo is transferred, acquired, or held between the points of origin
and final destination. Fire, theft, jettison, collision, contact, heavy weather, stranding/foundering,
sinking, war perils are the examples of the covered perils. Marine insurance also includes
onshore and offshore exposed property, such as container terminals, ports, oil platforms,
pipelines, etc.

Origin: The marine insurance law was originated from the law merchant in England in 1601 by
a specialized chamber of assurance. Growth of London insurance market led to the
standardization of policies and further development of marine insurance law. In 1906 the Marine
Insurance Act was formally passed and then its general principles have been applied to all non-
life insurances.

Marine Insurance in Practice: The Marine Insurance Act includes a standard policy (known as
the 'SG form'). Each term in the policy had been thoroughly tested through at least two centuries
of judicial precedent. In 1991, the London market produced a new standard policy known as the
MAR 91 forms using the Institute Clauses. In practice, the policy document uses the MAR form
as a cover, with the Clauses stapled to the inside. Each clause will be stamped to avoid the
substitution or removal of clauses.

Subject-Matter of Marine Insurance: Marine insurance is split between the vessels and the
cargo. A more restricted form of cover is Total Loss Only (TLO).
 Hull and Machinery (H&M) refers to the ship, hull and machinery of the vessel.
 Cargo refers to goods or merchandises that are being carried from one place to another or
are being imported or exported.
 Freight refers to the consideration that is payable to the ship owner in respect of carriage
of goods by the ship. Sometimes the freight is ‘pre-paid’ when it is at the risk of the cargo
owner, and sometimes the freight is ‘post-paid’ when it is at the risk of the ship owner.

Types of Marine Policy: There are five types of marine policies:

 Time Policy: The subject-matter of time policy is normally covered for a year whatever
might be the number of voyages within that year. For legal claim, a loss must take place
within the period of specified 12 months. Time policy comes to an end as soon as the
period is over, no matter whether the ship is in mid ocean or is unused.
 Voyage Policy: Voyage policy covers a particular voyage irrespective of the time factor.
In order to validate a claim, the loss must take place within or during the specified
voyage. Normally cargo is insured on this basis. The policy covers the cargo for the
whole voyage to the end.
 Mixed Policy: Mixed policy was introduced to overcome some problems in both the time
and voyage policies. It is a mixture of both policies. The present day marine insurance
policies are mostly mixed policies.
  Floating Policy: This policy is usually used for cargo insurance. To save the troubles of
merchants in effecting numbers of policies for each time of shipment, a floating policy
may be issued for a round sum covering the numbers of anticipated shipments. Each time
a shipment takes place the insured notifies the shipment. The sum insured is gradually
reduced by the value of each shipment and ends when the sum-insured is exhausted.
 Building Risk Policy is issued in respect of ships whilst in the process of erection or
building at dockyards.
Special Policies
 Yacht Insurance: Insurance of pleasure craft is generally known as 'yacht insurance' and
includes liability coverage.
 War Risks: War risks cover protects, at an additional premium, against the danger of
loss in a war zone. The war risks areas are established by the London-based Joint War
Committee.
 Increased Value (IV): Increased Value cover protects the ship-owner against any
difference between the insured value of the vessel and the market value of the vessel.
 Overdue insurance: It was an early form of reinsurance and was bought by an insurer
when a ship was late at arriving at her destination port and there was a risk that she might
have been lost (but, equally, might simply have been delayed).
 Cargo insurance: Cargo insurance is underwritten on the Institute Cargo Clauses, with
coverage on an A, B, or C basis. Valuable cargo is known as specie.
Protection and Indemnity: A marine policy typically covered only three-quarter of the
insured's liabilities towards 3rd parties. In the 19th century, shipowners banded together in mutual
underwriting clubs known as Protection and Indemnity Clubs (P&I), to insure the remaining one-
quarter liability amongst themselves. These Clubs are still in popular for other specialized and
uncommercial marine and non-marine mutuals, for example in relation to oil pollution and
nuclear risks. Clubs work on the basis of agreeing to accept a ship owner as a member and
levying an initial 'call' (premium). With the fund accumulated, reinsurance will be purchased;
however, if the loss experience is unfavorable one or more 'supplementary calls' may be made.
Clubs also typically try to build up reserves, but this puts them at odds with their mutual status.
Actual Total Loss and Constructive Total Loss:
 Actual total loss refers to the situation where the position is clear.
 Constructive total loss refers to the situation where a loss is inferred.
In marine insurance it is difficult to prove a loss arises because there might be no evidence of a loss. In
this case, marine insurance is seen as an insurance of 'the adventure', with insurers having a stake and an
interest in the vessel and/or the cargo rather than an interest in the financial consequences of the subject-
matter's survival.
Average in Marine Insurance: The term 'Average' has two meanings in marine insurance.
  In case of a partial loss, or emergency repairs to the vessel, average may be declared.
This covers situations, where a ship in a storm might have to jettison certain cargo to
protect the ship and the remaining cargo. ‘General Average' requires all cargo owners to
contribute to compensate the losses caused to those whose cargo has been lost or
damaged. 'Particular Average' is levied on a group of cargo owners and not all of the
cargo owners.
 In the situation where an insured has under-insured, i.e., insured an item for less than it is
worth, average will apply to reduce the amount payable. There are different ways of
calculating average, but generally the same proportion of under-insurance will be applied
to any payout due.
Excess, Deductible, Retention, Co-Insurance, and Franchise:
 Excess: An excess is the amount payable by the insured and expressed as the first amount
due, up to a ceiling, in the event of a loss. An excess may or may not be applied. It may
be expressed in either monetary or percentage terms. An excess is typically used to
discourage moral hazard and to remove small claims. The equivalent term to 'excess' in
marine insurance is deductible or retention.
 Co-Insurance: Co-insurance is applied in non-proportional reinsurance, an excess
expressed as a proportion of a claim.
 Franchise: Franchise is a deductible below which nothing is payable and beyond which
the entire amount of the sum insured is payable. It is typically used in reinsurance
arbitrage arrangements.
Warranties and Conditions:. A ‘condition’ describes a part of the contract that is fundamental
to the performance of that contract. By contrast, a ‘warranty’ is not fundamental to the
performance of the contract and breach of a warranty will not lead to a breach of the contract.
Salvage and Prizes:
 The term ‘salvage' refers to the practice of rendering aid to a vessel in distress. At sea, a
ship in distress might agree to Lloyd's Open Form with any potential sailor. The Lloyd's
Open Form is headed 'No cure, no pay’. This principle has been weakened in recent
years. Awards are now permitted in cases where the ship might have sunk, but pollution
has been avoided or mitigated..
 A ship captured in war is referred to as a prize, and the captors entitled to prize money.
Again this risk is covered by standard policies.
Inland Marine Insurance: Inland marine insurance indemnifies loss to moving or movable
property and is an outgrowth of ocean marine insurance. In the 1800s the non-ocean portion of
the journey grew as cargoes were transferred to non-ocean vessels (such as barges) and the term
"inland marine" was coined. It is also known as "floaters" since the property to which coverage
was originally extended was essentially "floating." The coverage has grown to include property
that just involves an element of transportation.
The conditions of inland marine insurance are-
 Actually in transit
  Held by a bailee
 At a fixed location that is an instrument of transportation
 A movable type of goods that is often at different locations
These coverage represent a wide range of the types of coverage typically called "inland marine“,
such as accounts receivable, communication towers and equipment, computer coverage,
contractors equipment, commercial floaters, installation, leased property, motor truck cargo,
museums, musical instruments, etc.