MARINE INSURANCE 1

Life Insurance General Insurance Fire Insurance Marine Insurance Auto Insurance Crop Insurance 2

D EFINITION (C ARGO, HULL, AIR WAY, TRUCK, RAIL ) Marine Insurance covers the loss or damage of ships, cargo, and any transport or property by which cargo is transferred, acquired, or held between the points of origin and final destination. 3

W HY IS M ARINE I NSURANCE IMPORTANT ? The cargo can be damaged on exposure to a wide variety of risks Marine insurance relieves the traders of their financial exposure from physical loss or damage to their goods while in transit 4

M ARINE C ARGO I NSURANCE It provides insurance cover in respect of loss of or damage to goods during transit by rail, road, sea or air. 5

Though the name may indicate that the policy covers the transit of goods only by waterways, it is not so Marine Cargo Insurance includes all forms of transit of goods – By Road, Railways, Water & Air Marine Cargo Insurance intends to protect the insured against the risk of loss or damage to the goods in transit It is also called transit insurance (Overseas – Inland). 6

Two Parties Insurer (Insurance Company) Insuree/Insured (Entity purchasing insurance policy) 7

I NSURABLE INTEREST A ship carrying cargo starts from India to Japan, on the way due to bad weather condition the ship meets with an accident and sinks. Who has insurable interest in the goods? The Sellers, the buyer or the transporter? 8

I NSURABLE I NTEREST 9

Usually it is the seller’s responsibility for any loss or damage suffered by the goods until their ownership passes to the buyer This applies to the normal sales within the country but not to export sales 10

W HO CAN BUY A M ARINE I NSURANCE POLICY ?? Contract of sale : Legal contract for exchange of goods, services or property to be exchanged from seller to buyer for an agreed upon value The contract of sale determines who buys the policy The most common contracts of sale, also called Incoterms (International Commercial Terms), are :  FOB (Free on Board)  C & F (Cost & Freight)  CIF (Cost, Insurance & Freight) 11

C ONTRACT OF S ALE  FOB (Free on Board): Seller is bound to load the goods onto the carrying vessel, he does not need to arrange insurance. FOB : Buyer Pays freight, Buyer arranges insurance  C&F (Cost and Freight): Same as FOB. The only difference is that the freight should be paid by the seller C& F : Seller pays freight, Buyer arranges insurance 12

C ONTRACT OF SALE  CIF (Cost – Insurance – Freight): The seller is bound to provide insurance covering the whole voyage up to the final destination CIF : Seller pays freight and seller arranges the insurance 13

In marine cargo insurance, the person having insurable interest at the time of loss can only recover Marine cargo policies are freely assignable. Unlike other policies, there is no need to take insurance company’s consent for transferring policy to new buyer 14

Marine policies are Valued Policies The sum insured is negotiated between the insured and the insurer i.e., the value is agreed upon and claims are settled on the basis of proportion to the agreed value and not on the market value or reinstatement value basis 15

M ARINE C ARGO I NSURANCE Provides insurance cover in respect of loss of or damage to goods during transit by rail, road, sea or air Consignments by rail, road etc  Export & import shipments  Coastal shipments  Shipments by inland vessels or country craft 16

Marine Cargo insurance provides; (1) Coverage of goods during Overseas Transit (2) Coverage for goods Inland Transit Marine insurance cover starts right from the moment the goods leave the point of start and remain continuously in force during transit and until the goods reach the destination. Marine Insurance(Risk Coverage, Period, Number of Voyage, Insurable Interest) 17

T YPES OF M ARINE C ARGO Overseas Transit  Open Cover  Specific Policies Inland Transit  Open Policy  Special Declaration Policy  Annual Policy 18

O VERSEAS T RANSIT O PEN COVER Large Export/ Import oriented Industries usually prefer Open cover agreement, as they have to make numerous regular shipments who would otherwise find it very inconvenient to obtain insurance cover separately for each and every shipment. 19

O VERSEAS T RANSIT O PEN C OVER A marine cargo open cover policy is an agreement between a merchant and an insurance company to insure all goods in transit within the agreement, until either party cancels the agreement 20

O VERSEAS T RANSIT O PEN COVER -F EATURES An Agreement is made for a specific period, generally 12months Rates, Terms & Conditions are agreed to in advance by both the parties Premium is paid in advance for the projected exports to be made Details of all shipments should be declared by the insured Agreement ceases on expiry of period or when sum insured gets exhausted whichever occurs first. 21

O VERSEAS T RANSIT S PECIFIC P OLICES Specific Policies: This agreement or policy is usually issued for one time transit of cargo Covers only particular consignment. Insurance on case to case basis. To be arranged before commencement of transit 22

INLAND TRANSIT O PEN P OLICY A manufacturer who in a year has many consignments for transportation, can take an open policy for the entire year instead of individual policy. Open Policy is commonly used for dispatches within the country by rail, road, air, inland waterways and registered post parcels. It is also known as the floating policy. 23

INLAND TRANSIT O PEN P OLICY The policy term is one year Policy issued for a substantial sum insured based on the projected value of dispatches Declarations are made for each dispatch Policy ceases on expiry of policy term or when sum insured gets exhausted whichever occurs first 24

INLAND TRANSIT S PECIAL D ECLARATION P OLICY Special Declaration Policy is a Form of Open policy for those with large turnover and frequent dispatches by inland transit via Rail, Road, Air, Inland waterways and post parcels Minimum estimated dispatches for an year should not be less than 2 crores 25

INLAND TRANSIT A NNUAL P OLICY Annual Policy: This policy covers transit of goods from plant/ warehouse of origin to the buyer’s plant/ warehouse. 26

Sum Insured will represent the maximum value of risk that may encounter during transit In case of more than one transit, sum insured would be sum total of the aggregate maximum estimated value at risk in transit at any given point of time Rating would depend on: - Distance involved - Single carrying limit - Turnover No declarations are required 27

S OME OF THE PERILS THE CARGO MAY COME ACROSS ARE ; 28

T YPES OF P ERILS SEA PERILS (Act of God – natural calamities etc.) EXTRANEOUS PERILS (Faults with loading, Breakage, Leakage) WAR PERILS (War, Rebellion etc.) STRIKE PERILS (Strike, Lockout etc.) 29

L OSSES FROM THE PERILS TOTAL LOSS Actual Total Loss ((Total Damage +Repair Cost) => Total Property Value) Constructive Total Loss ((Total loss+Repair+Salvage)=> Total Property Value PARTIAL LOSS (AVERAGE) General Average Particular Average 30

C ARGO C LAUSES Institute Cargo Clauses are standard terms and conditions which are used internationally Drafted by the Institute of London Underwriters & are internationally accepted Cargo insurance is usually provided by means of ICC - A, B or C, plus War Clauses and Strikes Clauses These clauses define the Terms of Cover for Export- Import Cargo Marine Cargo Policy is NOT complete unless the related Clause is attached to it 31

OVERSEAS TRANSIT CLAUSES INSTITUTE CARGO CLAUSE( C ) Fire or Explosion Vessel or craft being stranded, sunk, grounded or capsized (Overturn) Overturning or derailment of land conveyance (Rail/lorry) Collision or contact of vessel/craft or conveyance with any external objects, other than water Mishap at the time of discharge of cargo at Port of distress General Average ( When the entire venture is in danger, in order to save the Ship and Cargo, certain sacrifices are made and/or certain expenses are incurred) Jettison ( Throwing of cargo from above board the ship to save the vessel and/or other cargo) 32

OVERSEAS TRANSIT CLAUSES INSTITUTE CARGO CLAUSE ( B ) ICC C + Earthquake, volcanic eruption, lightning. Washing overboard (can be due to sea water/wind/bad weather) Entry of sea, lake or river water into vessel, craft, hold, conveyance, container, lift van or place of storage Total loss of any package lost overboard or dropped whilst loading on to, or unloading from vessel or craft 33

OVERSEAS TRANSIT CLAUSES INSTITUTE CARGO CLAUSE ( A ) All Risk Cover Except the specific exclusions 34

C OVERAGES – ICC A, B, C RisksI.C.C.(A)I.C.C.(B)I.C.C.(C) Fire or explosion CoveredCoveredCovered Vessel or craft being Stranded, grounded, sunk or capsized. CoveredCoveredCovered Overturning or derailment of land conveyance. CoveredCoveredCovered Collision or contacts of vessel with any external object other than water. CoveredCoveredCovered 35

C OVERAGES - C ONTD. RisksI.C.C.(A)I.C.C.(B)I.C.C.(C) Discharge of cargo at port CoveredCoveredCovered Earthquake, Volcanic eruption or lightning. CoveredCovered Not Covered General Average Sacrifice CoveredCoveredCovered JettisonCoveredCoveredCovered Washing Overboard CoveredCovered Not Covered 36

C OVERAGES – C ONTD. RisksI.C.C.(A)I.C.C.(B)I.C.C.(C) Entry of sea, lake or river water into the vessel CoveredCovered Not Covered Total loss of any package lost overboard – loading, or, unloading from vessel or craft. CoveredCovered Not Covered Any other risk not specifically excluded - ALL Risks Covered Not Covered 37

C ORRESPONDENCE BETWEEN ICC & C OVERAGES ICC C – Free of Particular Average ICC B - With Particular Average ICC A - All Risks 38