marine insurance Essay Example

that "Marine" Cargo does not necessarily encounter any water. Cargo insurance generally provides compensation for merchandise losses or damages due to fire, explosion, collision, sinking, capsizing, jettison, washing overboard, and general average sacrifice. General average sacrifice refers to the deliberate sacrifice of property during a marine journey to avoid the total loss of the ship and cargo (refer to section 4e for more information). This sacrifice can be partial, saving a portion of the cargo, or in severe cases, result in the entire shipment being lost.

Examples of cargo sacrifice include: (i) Goods that are thrown overboard to lighten a stranded ship, allowing it to be refloated; (ii) Damage to sound cargo caused by water used to extinguish a fire; (iii) Goods discarded to keep a sinking vessel afloat. Cargo insurance typically begins when goods leave the warehouse or storage location, continues during transit, and ends either upon delivery to the final destination or 60 days after discharge at the final port, whichever comes first. Many Cargo policies feature the Unseaworthiness and Unfitness exclusion clause, which denies coverage for losses, damages, or expenses resulting from the unfit condition of vessels or containers used for transportation. The War Exclusion Clause is another common provision that excludes coverage for losses incurred in war or war-related incidents (refer to section 2d on War Risks).

The presence of a Strikes Exclusion Clause is commonly seen in insurance policies. This clause excludes coverage for loss, damage, or expense resulting from strikes, lock-outs, and other labor disturbances. This clause encompasses a wide range of war-related incidents, including revolution, civil war, and insurrection. It also covers political risks such as failure to complete a

contract due to political intervention, including terrorism. Additionally, it includes coverage for abandoned mines, torpedoes, bombs, and similar hazards.

- 4 - The coverage period has stricter limits compared to a standard policy, protecting from loading to discharge at the final destination, or for the first 15 days after arrival, whichever comes first. Transshipment coverage is limited to 15 days only. Either party can cancel war risk insurance by providing a 7-day notice for hull and a 2-day notice for cargo. The typical war risk rates are 0.25% p.

The interest rate, which can be changed daily, is typically payable. However, due to the Iran/Iraq gulf conflict, rates as high as 0.5% per annum have been observed. If War cover is obtained, additional protection against the risk of loss caused by Strikes, Riots, and Civil Commotion can also be included. It is important to note that this additional coverage may be offered separately.

e) Building Risks Building risks insurance offers comprehensive coverage for a ship during its construction, launch, trials, and until its delivery to the owners. The insurance also includes coverage for liabilities arising from negligence. Once the ship is delivered, this type of coverage is typically provided by ? ; I Clubs. If the ship is undergoing repairs, it may return to building risk coverage.

f) When a ship is not in use or undergoing repairs, it is insured under a Port risks policy. This policy, similar to building risks coverage, protects against all risks including third parties.

g) Valuable cargo such as banknotes or diamonds is referred to as Specie. It can be challenging to provide coverage for these items in a general cargo treaty. An

infamous example of a specie loss is the 1983 Brinks Mat bullion robbery at Heathrow Airport, which was a significant "Marine" loss.

h) Exploration rigs and oil production platforms used to extract oil and gas from beneath the seabed present a different type of risk. These structures are generally immobile, and therefore, movement-related risks are not typically involved.

Rigs are transported from the construction site to the operation site and begin operations. Catastrophic accidents, such as the Piper Alpha incident in the North Sea in July 1988, can occur, resulting in substantial losses exceeding $1 billion. Much of the business is placed through the London Master Drilling Rig Policy, which was renamed London Master Energy Line Slip in 1988. "Energy" policies are comprehensive packages that provide coverage not only for the rig itself but also for pipelines and on-shore installations.

i) Losses from Yachts, including small craft, typically result in a 'working level' manner. However, when a hurricane, tsunami, or similar event occurs, an accumulation of losses takes place.
j) Marine risks often include insurance coverage for dockside buildings and structures, such as cranes.

The non-marine risks that are written in the marine market but are not related to this paper are considered outside of its scope. However, some non-marine business can fall under the coverage of the 1906 Marine Insurance Act if it is expressly covered or connected to a marine risk. This type of business is deemed marine. "Pure" incidental non-marine refers to the capacity of a marine syndicate that is used solely for writing non-marine business and is not connected to regular marine business. Inland marine business mainly relates to U.

S. A. is a trade association and

forum that covers "marine" risks such as cargo shipments and bridge insurance. Founded in 1884, it initially included Lloyd's underwriters as members. However, in 1909, separate bodies were established to represent the Lloyd's and company markets. Joint committees, consisting of equal members from both Lloyd's and S. A., handle matters concerning the Marine market in London. The ILU also functions beyond being a trade association. As the London Market operates on a subscription basis, the ILU issues policies on behalf of its members who accept portions of large risks. These policies are signed by ILU officials and represent co-insurance, with each underwriter only responsible for their accepted share of the risk (the line).

The ILU offers a settlement service where brokers can make one net payment each month or receive one, along with all the necessary details. The ILU also handles "Special" cash settlements for large losses. Currently, the ILU has around 110 members who believe that being a part of the ILU adds prestige. Thorough examination is conducted for membership applications.

The accounts of member companies are carefully assessed by the ILU. Associate members, who are either members for less than 5 years or have had a change in ownership within the last 5 years, submit quarterly returns and provide business plans beforehand. ILU members are required to meet a high standard of solvency. If a member company is a subsidiary of another company, often located overseas, a significant guarantee is needed from the parent company. As a result, the ILU proudly claims that no ILU company has ever failed to fulfill its obligations.

Two years ago, the ILU unveiled its own building. This building serves as

an underwriting center where member companies can lease office space. Most members have chosen to take advantage of this opportunity. Similar to Lloyd's, this arrangement provides added convenience for brokers and likely gives a competitive edge to the companies in the ILU building.

According to estimates, the time required to place a risk that previously took 2-3 days has now been reduced to half a day. In 1987, the ILU companies' premium income (excluding aviation) reached approximately ?1.5bn, with cargo accounting for one-third and the rest consisting of liability, energy, and hull. P;I CLUBS LUCRO handles both direct and reinsurance claims through three claims sections.

There are four sections of LUCRO: Hull, Cargo, Reinsurance, and Cargo Recoveries. The Hull section handles salvage recoveries for hull claims, while the Recoveries section handles cargo recoveries. The Recoveries section also deals with subrogation rights for both Lloyd's Marine underwriters and Insurance companies.

Nearly half of the world's ships, including marine craft like oil rigs, are classified by Lloyd's Register. When a new risk is presented to a Hull underwriter, they usually refer to this Register for essential ship details. It is important to note that the Register operates independently from the Corporation of Lloyd's and is overseen by a committee representing various shipping interests.

Ships that meet specific standards are classified, while others may be included without classification. Certain vessels are specially designated to indicate that their plans were approved pre-construction and were surveyed at every stage of the building process. To maintain a ship's classification, it must undergo annual surveys with a special survey conducted every four years.

However, some ship owners may choose not to bear the associated costs, leading

their vessels to have different symbols in the Register if surveyed independently by other organizations. Additionally, certain foreign standards may not align with Lloyd's standards, which must be taken into consideration when assessing risks.

The Salvage Association is a non-profit organization with over 100 surveyors worldwide. Its main purpose is to assess damage to ships or cargo and make recommendations for repairs or salvage. There are several important differences that an actuary should be aware of, although they may not have a direct impact on their work.

One key difference is the legal framework for marine insurance, which is governed by the 1906 Marine Insurance Act. This act includes detailed clauses on warranties, indemnity measurement, and the insurer's rights of subrogation. Sections 45 and 46 of the act specifically address changes of voyage or deviation from the originally planned voyage as stated in the policy.

The insurer is released from liability when the decision to change the voyage is made, regardless of whether or not the ship has actually deviated from the intended course at the time of the loss. This provision in the Act has had a global impact and has influenced international conventions, such as the 1974 York-Antwerp rules on general average. As a result, standard policy wordings are widely used, and case law plays a significant role in claim settlement within this industry. The terms "Sum Insured" and "Insured Value" have different meanings. For instance, a hull policy may have a Sum Insured of ? 8m based on an Insured Value of ? 10m, which means that only 80% of each loss will be paid by the insurer.

The Marine Insurance states that, as long

as there is no fraudulent activity, the value stated in the policy is considered the "insurable value" and is final. Ship market values can vary greatly, especially for oil tankers and rigs, which are influenced by wars and OPEC decisions. As a result, the amount paid out for a total loss may exceed the ship's market value at the time of loss. Therefore, marine claims are not always settled based on indemnity. Additionally, the 1906 Act defines two types of total losses.

Actual Total Loss is defined as the situation where the insured object is destroyed or damaged to the point that it no longer possesses the qualities it was insured for, or where the insured party is permanently deprived of it.
Constructive Total Loss refers to the circumstance when the insured object can only be saved from complete loss by incurring expenses that exceed its value.
Hull policies that cover war risks often include a provision that permits the insured party to claim a Constructive Total Loss if they have been unable to use the ship for a period of 12 months.

The Sum Insured become payable in each case, along with any additional expenses incurred by the insured (such as sue and labour charges). One key difference between ATL and CTL is that for a CTL claim to be valid, the insured must formally notify the insurer of their intention to abandon the vessel. An issue arises when the Insured Value exceeds the market value of the ship. For example, if the market value is ?8m, estimated repair cost is ?9m, and Insured Value is ?10m. This technically does not qualify as a CTL claim

because, according to the policy terms, the insured can only claim the ?9m repair cost.

A Compromise Total Loss payment is made through negotiation and can surpass the market value of ? 8m. General Average, as mentioned in sections 2(a) and 4(e), is defined by the Marine Insurance Act as any voluntary and reasonable sacrifice or expenditure made in times of danger to protect the imperilled property in a shared adventure. General Average is commonly used in settling marine claims, and although the basic concept is straightforward, its application can be complex. There is a considerable amount of case law that examines the definitions of terms such as "extraordinary", "voluntarily", "reasonably", and "imperilled". One example is when cargo is intentionally discarded due to mistakenly believing that there was a fire in a lower hold, which was determined not to be a General Average act since the property was not actually in danger.

(e) Reinstatement Premiums. Like other types of non-life insurance, making a claim on an outward non-proportional cover in marine business often requires paying a reinstatement premium. Unlike other types of insurance, marine business typically has very low retentions. Premium to cover: 1. 2.

3. 4. 5. 6.

The text discusses various types of insurance coverages and factors that affect the pricing structure for different types of vessels. These coverages include Total Loss Particular Average, General Average Contributions, Collision Liability, Salvage Charges, Sue and Labour Charges, and Profit. The usual practice is to determine a premium rate per deadweight tonnage, which is then adjusted based on the insured value of the vessel. Specialized vessels and small risks may have different approaches to pricing, while the dominant elements

of pricing structure depend on the type of vessel. For example, large tankers may have high salvage charges, while ferries may have higher exposure to particular average and collision risks due to frequent dockings. In cases of frequent machinery claims, an additional machinery deductible may be applied.

- 15 - The three-quarters Collision Liability or Running Down Clause, commonly found in hull policies, provides coverage for liability resulting from damages caused by the insured vessel's negligence to the owners and cargo of any other vessel involved in a collision.