General Cargo Underwriting Ayman Khamis Sharjah Insurance Company

Index Importance of Marine Insurance. Types of Policies. Contractual obligations of Parties Marine Cargo Clauses. Underwriting Factors Risk assessment & Policy Issuance Incoterms & parties obligations Which party arranges marine cargo policy. © The Arab Insurance Institute 2014

1. Importance Of Cargo Insurance Marine cargo insurance is a class of property insurance that insures property while in transit against loss or damage arising from perils associated with the navigation of the sea or air or land.

1. Importance Of Cargo Insurance Importance of Cargo Insurance for Individuals. Importance of Cargo Insurance for Corporates. Importance of Marine Insurance for Beneficiaries. Importance of Marine Insurance for international trade. Importance of Marine Insurance for the national economy.

2.Types of Policies Types of insurance contracts on goods: Individual (Normal) Policy It is the insurance policy that covers certain goods for a particular voyage. Floating Policy This policy will be arranged when there are: Many Shipments will be affected. Specific goods to be shipped. Origin of goods and destinations are known. The Sum Insured ( Value of goods ) known.

2.Types of Policies 3. Marine Cargo Open Policy: An agreement between a merchant and the insurance company to insure all goods in transit falling within that agreement for an indefinite period, until the agreement is cancelled by either parties. A certificate to be issued per shipment. Insured shipment is covered in case of negligence/failure to notify insurer. A notification should be given if shipment exceeds particular sum insured. Premium to be charged per shipment per certificate. Insured should insure all shipments with same insurer.

3. Contractual Obligations of Parties First: Obligations of the Insured The obligation to provide all the data relating to the danger correctly and accurately. The obligation to notify the insurer subsequent emergency incidents. The obligation to pay the insurance premium. The obligation to preserve the rights and interests of the insured.        

3. Contractual Obligations of Parties Second: Obligations of the Insurer To Indemnify the insured for the Loss/damage of the insured goods caused by insured peril subject to the policy limits and conditions. To provide the conditions to the insured clearly so does not create ambiguity in these conditions or different interpretations.

4.Marine Cargo Clauses Definition: Set of terms for cargo insurance policies voluntarily adopted as standard terms by many international marine insurance organizations, including the Institute of London Underwriters and the American Institute of Marine Underwriters.

4.Marine Cargo Clauses NEW CLAUSES OLD CLAUSES INSTITUTE CARGO CLAUSES (A) INSTITUTE CARGO CLAUSES (ALL RISKS) (AR) INSTITUTE CARGO CLAUSES (B) (WITH AVERAGE) (WA) INSTITUTE CARGO CLAUSES (C) (FREE FROM PARTICULAR AVERAGE) (FPA)

4.Marine Cargo Clauses By Sea: Institute Cargo Clause ( C ) 1. Risks Covered: Loss of or damage to the subject-matter insured reasonably attributable: Fire or explosion Vessel or craft being stranded grounded sunk or capsized Overturning or derailment of land conveyance

4.Marine Cargo Clauses Collision or contact of vessel craft or conveyance with any external object other than water Discharge of cargo at a port of distress. Loss of or damage to the subject-matter insured caused by general average sacrifice & jettison.

4.Marine Cargo Clauses 2. General Average General average is a global maritime industry loss mitigation convention whereby ship owners and cargo interests proportionately contribute to fully reimburse those in the venture who sustained loss or damage in preventing the total loss of a vessel, crew and its cargo. Undamaged interests must confirm their contribution by way of a financial guarantee before their cargo or interest is released while their final contribution is calculated, sometimes years later. 3. “Both to Blame Collision Clause”

4.Marine Cargo Clauses Institute Cargo Clauses (B) In addition to the cover provided by Clause (C) , this clause cover: Earthquake & Volcanic Entry of sea lake or river water in to vessel craft hold conveyance container liftvan or place of storage, Total loss of any package lost overboard or dropped whilst loading on to, or unloading from, vessel or craft 4.Marine Cargo Clauses

4.Marine Cargo Clauses By Air : Institute Cargo Clauses (A) All risks except as provided in the exclusions. By Air : Institute Cargo Clauses ( Air ) Same coverage as provided by Institute Clause (A) with the difference in the period of Insurance and relevant conditions for the conveyance. 4.Marine Cargo Clauses

4.Marine Cargo Clauses Shipments by land: - ALL risk Land Transit All risks except as provided in the exclusions. - Land transit Clause - Burning/collision of the land conveyance with any object other than cargo. - Overturning of the land conveyance 4.Marine Cargo Clauses

4.Marine Cargo Clauses Period of Insurance: Attaches from the time the goods move from the place of storage and expires: When arrived to final place or Expiry of certain days as per institute clause used at port/airport of discharge The time the consignment changed the destination other than specified in policy on delivery to any other cold store or place of storage, whether prior to or at the destination named in the contract of insurance, which the Assured or their employees elect to use either for storage other than in the ordinary course of transit or for allocation or distribution 4.Marine Cargo Clauses

4.Marine Cargo Clauses General Exclusions. 1-loss damage or expense attributable to wilful misconduct of the Assured. 2-ordinary leakage, ordinary loss in weight or volume, or ordinary wear and tear of the subject-matter insured. 3- loss damage or expense caused by insufficiency or unsuitability of packing or preparation of the subject-matter insured to withstand the ordinary incidents of the insured transit .

4.Marine Cargo Clauses General Exclusions 4-Loss damage or expense caused by inherent vice or nature of the subject-matter insured. 5- loss damage or expense caused by delay, even though the delay be caused by a risk insured against. 6-loss damage or expense caused by insolvency or financial default of the owners managers charterers or operators of the vessel where, at the time of loading of the subject-matter insured on board the vessel, the Assured are aware, or in the ordinary course of business should be aware.

4.Marine Cargo Clauses General Exclusions 7-Unseaworthiness of vessel or craft or unfitness of vessel or craft for the safe carriage of the subject-matter insured, where the Assured are privy to such unseaworthiness or unfitness, at the time the subject-matter insured is loaded therein.

4.Marine Cargo Clauses General Exclusions. In no case shall this insurance cover loss damage or expense caused by - war civil war revolution rebellion insurrection, or civil strife arising therefrom, or any hostile act by or against a belligerent power - capture seizure arrest restraint or detainment (piracy excepted), and the consequences thereof or any attempt thereat - derelict mines torpedoes bombs or other derelict weapons of war.

4.Marine Cargo Clauses General Exclusions. In no case shall this insurance cover loss damage or expense caused by strikers, locked-out workmen, or persons taking part in labour disturbances, riots or civil commotions resulting from strikes, lock-outs, labour disturbances, riots or civil commotions caused by any act of terrorism caused by any person acting from a political, ideological or religious motive.

4.Marine Cargo Clauses Special Clauses to particular goods: INSTITUTE FROZEN FOOD CLAUSES (A) (Excluding Frozen Meat) (NOT SUITABLE FOR CHILLED) INSTITUTE FROZEN MEAT CLAUSES (A) – (24 Hours Breakdown) NOT SUITABLE FOR CHILLED) INSTITUTE FROZEN/CHILLED MEAT CLAUSES (A) – (24 Hours Breakdown) INSTITUTE FROZEN/CHILLED FOOD CLAUSES (A) – (24 Hours Breakdown) INSTITUTE FROZEN MEAT CLAUSES (A) NOT SUITABLE FOR CHILLED)

4.Marine Cargo Clauses INSTITUTE FROZEN/CHILLED MEAT CLAUSES (A) – (24 Hours Breakdown) RISKS COVERED 1- all risks of loss of or damage to the subject-matter insured, other than loss or damage resulting from any variation in temperature howsoever caused 2- loss of or damage to the subject-matter insured resulting from any variation in temperature attributable to - breakdown of refrigerating machinery resulting in its stoppage for a period of not less than 24 consecutive hours - fire or explosion - vessel or craft being stranded grounded sunk or capsized - overturning or derailment of land conveyance - collision or contact of vessel craft or conveyance with any external object other than water - discharge of cargo at a place of distress 3- General Average

4.Marine Cargo Clauses INSTITUTE BULK OIL CLAUSE Risks Covered 1- loss of or contamination of the subject-matter insured reasonably attributable to Risks covered in clause(c) in addition to earthquake. 2- loss of or contamination of the subject-matter insured caused by - general average sacrifice - jettison - leakage from connecting pipelines in loading transhipment or discharge - negligence of Master Officers or Crew in pumping cargo ballast or fuel - contamination of the subject-matter insured resulting from stress of weather. 3- General Average

4.Marine Cargo Clauses Marine Project Cargo Insurance Insured Interest Project Cargo being general cargo of every description required /designated/ intended for the construction and erection of the named Project, consisting principally of but not limited to machinery, equipment, material for the construction and erection of the named Project in the Schedule and associated works.

4.Marine Cargo Clauses Marine Project Cargo Insurance Insured Interest Prototype : INSURERS shall be liable only if specifically advised, in writing, of any machinery, equipment and/or materials, which are of a prototype nature, quality, or condition. Any quote given by underwriters shall be contingent upon such advice having been received in conjunction with all other underwriting information.

4.Marine Cargo Clauses Marine Project Cargo Insurance Insured Interest Project Cargo Critical Items list of Project Cargo Critical Items including date when they shall be assembled/built in, replacement time in case of damage , shall be presented to INSURERS prior to commencement of insurance.

4.Marine Cargo Clauses Marine Project Cargo Insurance What are project Critical Items???? A Project Cargo Critical Item shall display one or more of the following characteristics: Project Cargo which, in the event of loss or damage during transit, cannot be repaired, remanufactured, replaced, reshipped, installed, tested and commissioned within sufficient time to arrive at the Project Site in time to facilitate the Scheduled Commercial Operating Date. Exceeding particular Sum Insured Any Project Cargo which does not fit inside a standard 40 foot container or on a 40 foot fat rack or on an equivalent road trailer

4.Marine Cargo Clauses Marine Project Cargo Insurance Survey Warranty (Project Cargo Critical Items) All fees for the account of the INSURED

4.Marine Cargo Clauses Marine Project Cargo Insurance Cover Provided: Section 1: loss&/or to project cargo during transit as per Institute Cargo Clauses covering all risks clauses including war and strikes .

4.Marine Cargo Clauses Marine Project Cargo Insurance Cover Provided: Section 2: Delay in Start UP (DSU) 1- Loss of and/or damage to and/or delay in arrival of the Project Cargo which results from an event giving rise to an indemnifiable claim under Section 1 of this insurance, or which would have been the subject of indemnity without the application of the Section 1 Deductible as stated in the Schedule

4.Marine Cargo Clauses Marine Project Cargo Insurance Cover Provided: Section 2: Delay in Start UP (DSU) 2- loss of or damage to or mechanical breakdown of the hull or machinery and/or equipment of the vessel, craft or aircraft, on which any of the Project Cargo is being carried or is intended to be carried which would be covered under: - The Institute Voyage Clauses – Hulls 1/10/83 (CL 285) and/or - Institute War and Strikes Clauses Hulls – Voyage 1/10/83 (CL 295) or an Aircraft All Risks policy.

4.Marine Cargo Clauses Marine Project Cargo Insurance Cover Provided: Section 2: Delay in Start UP (DSU) 3- loss of or mechanical breakdown of, any motor or rail vehicle or attachment thereto upon which any of the Project Cargo is being transported or is intended to be transported;

4.Marine Cargo Clauses Marine Project Cargo Insurance Important exclusions for section 2: - Delay as a consequence of fines, penalties, unless specifically included by insurers prior to inception. Delay as a consequence of destruction or damage by order of any government or by any public authority other than where specifically covered under Section 1. Delay as a consequence of lapse or cancellation of a lease, import license and/or regulation or restriction unless resulting from a peril insured. Delay as a consequence of non-availability of funds.

5.Underwriting Factors Destination or origin The geographical, physical or political conditions at destination or origin create difference in the risks involved. Can we insure a goods from a place which is not the origin of the goods???? If yes, what we should do?????

5.Underwriting Factors 2- Type of Goods etc…. Rice Medicines Fragile Items Bulk Sugar Crops 3- Value of Goods - Values exceeds underwriting capacity????? 4- Ocean carrier Age Liner or chartered P&I Type of Vessel

5.Underwriting Factors 5- Shipping routes War Zone areas Strikes areas Piracy Route Ports of poor operations & Security facilities 6- Time of shipping Greater damage may be sustained by goods shipped across North Atlantic in winter than in summer, and rain water damage is more prevalent in the monsoon season than in the dry season.

5.Underwriting Factors Packing Standardization of packing, whether by container, pallet or otherwise, has been found to be impractical. Consequently, packing varies considerably, with resulting variance in rates, depending on the degree of protection provided. Salvage The proceeds of salvage operations reduce the net amount of loss. Salvage possibilities vary with the goods itself, locality and economic conditions. Loss Record for the Applicant

6.Risk Assessment & Policy Issuance Risk Assessment will be based on adequate underwriting Factors. Based on the risks and hazards, technical decision will be wither: - Accept the risk &/or add special conditions & exclusions. - Reject the risk totally or limit the requested cover.

6.Risk Assessment & Policy Issuance Exercise 1: Shipment of Fuel Oil in Bulk from Anywhere in Arabian Gulf to Any port in Western Africa. Estimated Turnover during the year : USD 200,000,000. Maximum limit per shipment : USD 40,000,0000 Risk Factors for assessment of this risk: - Flammable fuel - Port of discharge and infrastructure available to handle shipment - Details of vessel to be used – Class, Age of the tanker - Routes to be taken. - Details of the surveyors to attend at load port and discharge port for quality and quantity survey. - Is the vessel liner or chartered - P&I

6.Risk Assessment & Policy Issuance Exercise 2: Shipment of Frozen meat / Chilled meat by air from any Indian Airport to UAE valued at USD 100,000 (Ex-works) - Distance from the supplier warehouse to airport and mode of transportation. - Details of the reefer equipment as the meat should have been thoroughly frozen / chilled and properly spaced out in equipment designed for the purpose before consigning to cold storage or transportation.

6.Risk Assessment & Policy Issuance Exercise 3: Shipment of Project Cargo from Anywhere in the World to the project site and vice versa. Estimated Turnover during the year : USD 1,000,000,000.Maximum limit per shipment : USD 100,000,0000 Risk Factors for assessment of this risk: - List/Details of the major and critical cargo to be shipped. - Details of cargo to be shipped on deck. - Details of the surveyors to attend at load port and discharge port for the critical items. - Major Countries and routes to be taken. - Details of vessels to be used. - Any involvement of towed barge shipments

7. Incoterms & Parties Obligations The basic function of the INCOTERMS, which have been widely accepted by international traders, is to simplify the quotation of prices in international trade and to define the responsibilities and rights of sellers and buyers under each of the terms of sale.

7. Incoterms & Parties Obligations The most frequently employed terms in international trade are: EXW – Ex Works Carriage to be arranged by the buyer. Risk transfer from the seller to the buyer when the goods are at the disposal of the purchaser. Cost of assignment from the vendor to the buyer when the goods are at the disposal of the buyer. FOB - Free On Board Carriage to be arranged by the purchaser. Risk transfer from the seller to the buyer when the goods pass the ship’s rail. Cost transfer from the vendor to the buyer when the goods have been placed alongside the ship.

7. Incoterms & Parties Obligations CFR - Cost and Freight Carriage have to be arranged by the seller. Insurance have to be arranged by the buyer. Risk transfer from the vendor to the buyer when the goods pass the ship’s rail. CIF - Cost, Insurance, Freight Carriage and insurance have to be arranged by the seller. Risk transfer from the seller to the buyer when the goods pass the ship’s rail.  

7. Incoterms & Parties Obligations - The Incoterms 2010 rules are the first version of the Incoterms rules since the revision of the Institute Cargo Clauses and take account of alterations made to those clauses. - Articles A3/B3 relating to insurance has also been altered with a view to clarifying the parties’ obligations in this regard.

7. Incoterms & Parties Obligations A3 – Seller’s obligations: Contract of insurance: The seller has no obligation to the buyer to make a contract of insurance. However, the seller must provide the buyer, at the buyer's request, risk, and expense (if any), with information that the buyer needs for obtaining insurance. B3 – Buyer’s obligations: Contract of insurance: The buyer has no obligation to the seller to make a contract of insurance.

8.Which party arranges marine cargo policy Marine insurance covering an international transaction may be arranged by either the exporter or importer, depending upon the terms of sale. The terms of sale are all-important in the placing of marine insurance. The subject is a complex one and varies by trade and commodity. Generally coverage attaches at commencement of transit at the point of shipment at the risk of the assured and the coverage continues in due course of transit until the goods are delivered into the warehouse at destination.

8.Which party arranges marine cargo policy Advantages to exporter: The exporter is more likely to have complete and necessary knowledge of technicalities and problems pertaining to the goods. With an open cargo policy, the exporter knows that his insurable interest in a specific transaction is protected. This explains why his overseas selling is facilitated by arranging insurance protection “for account of whom is may concern.” i.e., for the benefit of both parties to the sales contract.

8.Which party arranges marine cargo policy Advantages to importer: Automatic “warehouse-to-warehouse” protection is provided with proper terms of insurance specifically designed for the Assured’s goods and methods of shipment. Such insurance provides coverage for the full exposure, at proper values and adequate limits.

8.Which party arranges marine cargo policy Advantages to importer: Rates will be competitive and reflect the Assured’s own experience. Free to choose his own insurer. Claims service is available by claims representatives appointed by the underwriter.

8.Which party arranges marine cargo policy Advantages to importer: - General Average claims can easily be managed by local insurer through signing general average guarantee.

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