Commercial Insurance
MARINE INSURANCE
Suitability
These policies cover risks associated with transshipments of goods like:
Transit of heavy goods such as Rail Engines by shipping vessels or
consignment of Diamonds sent by post or
Movement of household goods by rail/road/Air.
Risks vary with the type of business transacted whether it is by importers, exporters or trading house.
Some form of Life & transit risks is still undertaken by Indian Posts & Telegraphs Dept.
Salient Features
The striking feature of Marine Insurance policies is that they are issued on 'agreed value basis'.
The values agreed may include all expenses incurred or to be incurred and some amount of profit margins as well. As such the valuation of the consignment is important and it should be based on supporting evidence.
The contracts can be supply of goods on:
Ex-factory/godown/warehouse basis
F.O.B. basis (free on board- values arrived at, may include sale price, packing and incidentals, insurance and freight for local transit until goods are placed On the ocean going vessel)
F.O.R. (values until placed on Railway wagon as in the case of FOB)
C & F (cost and freight values as in CIF, except the Insurance costs)
C.I.F. (cost insurance & freight would be sale price and incidental charges, Insurance charges from warehouse to warehouse basis or any other point of delivery and all freight charges)
Types of policies
Based on the needs of trade and industry, the following types of policies are issued:
Voyage Policy
The voyage policy is issued to cover up a specific transit from a particular point to another. The cover ceases upon the carrier reaching the town of destination. In all the policies, the scope of cover can be:
Basic cover : Basic cover is described in ICC-C clause
Wider cover: wider cover is described by ICC-B.
All Risks cover. All risks cover by ICC-A.
All risks cover does not pay all losses.
All risks cover can be extended against "Delay start up" or 'Consequential Loss due to Marine delays' or 'Advance loss of profits' risks.
While the basic policy document contains general conditions, the scope of cover and exceptions and special exclusions are attached by separate clauses known as Institute cargo Clauses (ICC).
Extensions Of Voyage Policy
FOB risks cover-The road/rail transit risks can be extended until the goods are placed on board of the ocean going vessel, which may involve country craft/lighter risks also.
Warehouse to warehouse basis: the policy covers all risks right from the moment the goods are dispatched from the suppliers warehouse till they reach the buyers’ warehouse.
Annual policy
If a business involves regular dispatch of goods throughout the year, and the quantity can be reasonably estimated advance, an annual policy can be obtained on the basis of estimated annual dispatches. Premiums collected in advance will be adjusted at the end of the year.
Declaration policy
An alternative to annual policy is declaration policy. A policy can be obtained for any specific amount so that every dispatch to be insured for transit risks can be declared as agreed to and accounted until the sum insured is exhausted. The policy can be extended for a further sum.
Special declaration
If sum insured selected is more than Rs.2 crores, a special declaration policy can be obtained for which volume discount in premium is allowed. The annual dispatches should be reasonably estimated and the policy taken. However, the sum can be extended for a couple of times in extra-ordinary cases of genuine reasons.
Open cover
It is a memorandum of agreement by which the insured will set out the terms of cover and rates of premium for one-year transaction of Marine dispatches. The open cover is not a Policy and it is not negotiable. A Certificate of insurance is issued for each declaration duly stamped for appropriate value and the Certificate will be negotiable.
Duty policy
A deviation in Marine Insurance is to issue custom duty payable for imports by the same Marine Policy though there may not be any transit risks are involved. In case of CIF contracts, the exporter to the extent of CIF values would have arranged the Insurance only. Custom Duty payable, if any, would be the responsibility of the importers and they can separately obtain Custom Duty policy on 'stand alone basis'.
Another special feature of custom duty policy is that it is a pure indemnity policy and the insured is paid the exact amount of loss of custom duty as a result of loss or damage to the consignment. The policy should be obtained before the vessel reaches the port of destination.
Increased value policy
Increased value If goods imported are damaged in transit and such goods can be procured locally at prices higher than the CIF + custom duty, the Increased value policy covers such difference in value. This is purely an Indemnity policy and for the benefit of the insured only and cannot be Assigned to others. The policy should be obtained before the overseas vessel reaches the port of destination.
Marine Delays (Marine LOP)
In case of new project where equipment has to be procured indigenously or by imports, any loss or damage to the equipment during transit may involve ordering of fresh equipment which leads to delay in completion of the project, commencement of production and thereby loss of profits. The Financial institutions who are interested in timely completion of the project for their debt servicing, would like this risk covered by an Insurance contract and the Marine (cargo) insurance policy can be extended against what are known as 'consequential loss due to Marine delays' or simply -Delay start up.
Marine policy as a part of Builders risk (Marine cum Erection)
In case of Marine cum Erection Insurance policy, Marine risks are followed by Storage risks, Erection and testing. In the standard Marine (cargo) policy, the cover ceases after the goods are delivered at the site of erection. In a project site, it is not possible to examine any internal damage to the consignment and such losses don't surface till the time of erection. If any damage were found at the time of erection attributable to Transit risks, the marine policy and erection policy bear 50% each of the cost of damage. This is possible only if both Marine policy and erection policy is taken from the same insurers.
Benefits
But for the Marine insurance policies, the trade, industry and commerce would not have developed to the present levels of turnovers anywhere in the world. A manufacturer can export their produce with confidence as their dispatches have the support of Marine insurance policies, and they can also discount their bills with local Bankers without waiting for the bills being paid by the overseas importers after they receive the goods which may take months by ocean transit. Marine Insurance Policy is one of the important documents besides Invoice and Bill of Lading.
Premiums
While there is no Tariff rate of premium and the insurers can charge any rate depending upon the nature of goods, the mode of transshipment, type of package, the voyage route and the past claims experience. However extended covers like SRCC and War risks (for overseas cargo) risks are governed by special regulations and the premiums collected will be credited to the Central Govt.
Shipping vessels are listed according to their age, draught weight and their classification by G.I.C. for approval. Full details of every shipping vessel built anywhere in the world would be available in 'Lloyds Register' (issued by Lloyds of London) Minimum standards are fixed. Any vessel falling short of these standards will attract loading of premium.
Service Tax and Stamp duty is always collected from the insured separately along with premiums.
Requirements
Except in the case of increased value policies, no formal proposal form eliciting insurance history, claims history or matters relating to physical or moral hazards, which are common in all other policies, is called for. However simple details of the property in transit, type of packing, mode of transport and values are to be provided in Marine Questionnaire form. The reason being that all Marine Insurance policies (cargo) are easily assignable to any one and one should have insurable interest at the time of a claim and not necessarily at the time of Insurance. The policy is assigned by simply endorsing the policy on its reverse.
In case of annual policies, the previous years turn over and the estimated increase during the current year is the basis for fixing sum insured for annual policy.
In case of declaration policies, one has to take a policy equivalent to 3 months estimated dispatches, which can be extended any number of times. All the dispatches should be declared without exception as per terms agreed to.
In case of special declaration policies, the minimum sum insured should be Rs.2 crores and the policies should be for sums equivalent to estimated annual dispatches. The declarations can be made at an agreed period (even after a loss). As the entire premium has to be paid in advance, volume discounts are offered.
Open cover is a memorandum of agreement between the two parties and it is not negotiable.
Duty policy can be obtained much after dispatch of goods but before the vessel reaches the port of discharge.
Increased value policy is obtained to take care of market fluctuation of prices and it can be obtained much after dispatch of goods but before the vessel reaches the port of discharge. A completed proposal form is required in this case.
Recommendations
Marine policies, except increased policies, are freely assignable. Marine policy document is a fundamental requirement for discounting invoices with local bankers without waiting for the importer to receive the overseas shipments and pay the invoices.
Even for sale contract on FOB basis when the insurable interest ceases (the goods are placed overboard by the seller) by a notional extension of principle of insurable interest, the risk can be covered by 'Sellers contingency policy'.
Consignments sold without the support of a 'letter of credit' can also be insured for importer default to pay by "Export Credit Guarantee Corporation of India.
