How Does Marine Insurance Work?

Cargo insurance covers loss or damage to goods or shipments during transit from the point of origin to the point of destination. It is regulated by the Insurance Regulatory and Development Authority of India (IRDAI) and governed by the Marine Insurance Act of 1963. Any business or entity having an insurable interest as per Section 5 of the act can be the subject of a contract of marine insurance.

The most common causes of loss or damage to cargo during transit are accidents, hijacks, explosions, fires, overturns, and collisions. The policy covers non-delivery of goods, malicious damage, theft, cargo mishandling, damage during loading and unloading or due to improper packaging.

You can tailor the policy’s coverage depending on your business requirements, and it encompasses a vast range of cargo/goods, whether you manufacture or trade them.

After understanding what marine insurance is, it is essential to understand its features.

Flexible premiums: Some insurance companies offer flexible premium payment options. These options include single, quarterly, or annual payment plans. The feature may differ from one policy type to another.

Customer-focused policies: Insurance providers offer marine insurance plans designed to fulfil the specific needs and requirements of the customer. These customers are involved in transporting shipments via waterways or sea. However, with some insurers it may also cover transportation through air, rail and land methods.

Insured value options: The ship or cargo owner can decide on the insured value of their goods. They can pick the agreed-upon value or the actual value.

The primary types of marine insurance are:

Cargo Insurance

Cargo insurance provides coverage against loss or damage to goods during transportation from origin to destination. It is of three types - annual open policy, specific policy, and annual sales turnover policy. It differs based on the kind of coverage desired and the number of transits.

The policy protects the cargo owner against financial damages resulting from cargo mishandling at the terminal or during the voyage and for this reason, cargo insurance is also knows by the name transit insurance. These cases can lead to the cargo getting lost, damaged, or misplaced.

The insurance plan also includes third-party liability insurance, which tackles any damage done to the ship, port, other cargo or humans due to your shipment.

Hull Insurance

Hull insurance provides coverage for the loss or damage caused to the ship or vessel, including equipment, machinery, and other parts. Generally, ship owners invest in this type of insurance.

Liability Insurance

During movement in the sea, the ship is at risk of collision, piracy attack, or crash. The cargo and the life of crew members is also at high risk. Liability insurance compensates ship owners for such losses as they are caused by events not under their control.

Freight Insurance

This type of insurance covers the loss of freight. The shipping company does not need to bear the loss of freight lost or damaged during transit. The insurer compensates for the loss.

When you buy a marine insurance policy, you transfer the liabilities of the goods to the insurance provider. This type of insurance limits your legal liability for handling the goods or shipments transported.

An exporter can purchase an insurance policy offering coverage against any potential loss or damage caused to the goods exported. If the goods suffer damage or incur losses during transit, the carrier can be held accountable, but the compensation is provided based on per package or consignment.

Here, the exporter’s insurance policy will not be able to cover the value of the goods shipped adequately. Therefore, exporters must ship their products only after getting marine insurance from a recognised insurance provider.

Marine insurance is a prerequisite for export contracts. Businesses engaged in international trade must buy marine cargo insurance to protect their buyer or bank interests and fulfil their contractual obligations.

Here’s a step-by-step description of the marine insurance working process.

• The shipper or cargo owner purchases a suitable insurance policy from an insurer before shipping the cargo. They can tailor the policy to suit their specific needs after considering the nature and value of goods, the mode of transportation, the type of cargo, and the destination.

• The policy’s coverage protects against loss or damage to the cargo because of several perils, such as natural calamities like earthquakes, lightning, and storms, along with man-made risks like fire, piracy, and theft. The insurance plan also offers coverage for losses due to improper packaging or handling of the cargo and omissions or errors made by the carrier.

• The policy’s premium is computed based on the inherent risks, mode of transportation, value of shipment, and other factors. The premium is payable by the shipper or cargo owner to the insurance company.

• The shipper or cargo owner can file a claim with the insurance company in the event of damage or loss to the cargo during transit. While filing a claim, the policyholder must provide proof of damage or loss, such as cargo receipts, lading bills, and other supporting documents.

• The insurance company investigates the claim and calculates the compensation the shipper or cargo owner should receive. The calculation for the settlement amount is based on the extent of the damage or loss and the value of the shipment. The insurance company disburses the settlement amount to the shipper or cargo owner.

• A shipper or cargo owner can secure their finances in case of loss or damage to cargo during transit by purchasing marine insurance.

With a marine insurance policy, you can enjoy protection against the following:

• Cargo damage due to explosion, fire, stranding, sinking, or misplacement

• Loss during loading or unloading of cargo

• Total loss of shipment during loading or unloading due to mishandling

• Losses due to natural calamities like earthquakes, floods, lightning, etc.

• Unforeseen administrative expenses

• Damage or non-delivery of cargo due to collisions, piracy attacks, crashes, accidents, overturning, derailment, etc.

Note: The inclusions may vary from insurer to insurer and policy to policy. Thus, you must read the policy’s terms and conditions carefully to understand which damage you get coverage against.

A marine insurance policy has specific exclusions. There is no compensation in the case of:

Inappropriate packaging

Intentional or planned misconduct

Delays

Removal of wreck

Damage suffered due to insolvency

Rioting, war, strike

General leakage or wear and tear of the cargo

Note: The exclusions may vary from insurer to insurer and policy to policy. Thus, you must read the policy’s terms and conditions carefully to understand which damage you get coverage against.

Some major benefits you can reap with marine cargo insurance are:

Aids in managing the risks associated with businesses operating in water for trade, travel, or leisure.

Reduces the risk of cargo theft.

Offers financial stability during mishaps.

Provides comprehensive all-risks coverage to include dishonesty of employees, rejection of customs, infestation, losses incurred due to inappropriate packaging of goods, etc.

Enables customisation of policy to suit your needs and budget.

Provides flexible coverage options.

Protects against losses or damage during transportation across international borders, encouraging businesses to engage in global trade and commerce with peace of mind.

Marine cargo insurance covers cargo shipped via water, air, rail or road transport. You can customise the policy’s terms and conditions to suit your needs and avail coverage for the value of goods and the cost of transportation.

You pay a premium to the insurer for marine insurance. The insurer takes the responsibility of providing coverage against loss or damage to cargo during transport. You can file a claim with the insurance provider in case the cargo is damaged or lost during transport to recover your losses. Hence, choosing the right insurance provider becomes critical.

Tata AIG offers marine insurance policy that provides international coverage, ensures compliance with regulations, coverage for liability claims, and more.

Is it mandatory to buy marine insurance?

Yes. It is mandatory to have a marine insurance policy for performing commercial and transportation activities in India.

Why should you buy marine insurance?

Marine cargo insurance ensures that your shipment or goods are secure during transportation. It reduces the financial stress of loss or damage caused to the shipment or goods due to any mishap.

Is marine insurance available online?

Indeed. You can purchase a marine insurance policy online from any reputed insurance provider. The process is simple. Select the type of coverage, enter the necessary details, and use the online premium insurance calculator to check if the policy suits your requirements and budget.