Franchise Clause in Marine Insurance and How Does It Work?

Marine transport (specifically, waterways) is exposed to a relatively higher degree of risk as compared to the other modes of transport. The perils that affect the transit are the risk of weather or natural hazards, international conflicts, theft and attacks, etc. This makes marine insurance an essential component for all the parties associated with the transit of goods. In the article below, we shall understand the franchise clause in marine insurance.

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Marine Insurance

Marine insurance is a contract between the insurer (insurance company) and the insured (the buyer of the policy), wherein, the insurer agrees to compensate the insured, in case of maritime losses. A marine insurance policy protects against different risks which include ship collisions, ship attacks, fire, natural calamities, etc. The insured pays a certain amount as a premium in consideration of the guarantee and protection he receives from the insured.

There are different types of coverage options available under a marine insurance policy that offer protection to the cargo, vessels or both, depending on routes taken and other factors. These insurance contracts are well-laid-out contracts which have to be followed by both parties.

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Franchise Clause in Marine Insurance

A franchise clause in marine insurance policy states that the insured will pay for losses if the damage or losses occur under a particular agreed amount. In case the damage is more than the specified amount, the insurer will be liable to pay the damages.

The franchise amount is determined based on the percentage of the sum insured. In such cases, the insurance companies will not pay for the losses incurred below the mentioned franchise value on the insurance policy. If the losses exceed the franchise amount, then the insurance company covers the full damage.

Let us understand by taking an example

An importer buys a marine insurance policy for protecting the raw materials. The sum insured of this policy is Rs 50 lakhs with a franchise clause of 5%. Thus, the minimum threshold amount for the franchise clause works to Rs 2,50,000.

Situation1:

The importer upon arrival declares the damages of Rs 1,00,000 to the insurance company. Since the damage is less than Rs 2,50,000 (franchise amount), the insurance company would not pay for the damages.

Situation 2:

If the importer declares the damages of Rs 5,00,000 to the insurance company, the insurance company is liable to pay for the losses. The damage recovery will be the full amount (Rs 5,00,000) provided it fulfils all the required conditions.

Difference between Franchise Clause and Excess Clause

Apart from the franchise clause in marine insurance, there is another clause which limits the insurance company’s financial responsibilities. It is the excess clause. In an excess clause, the insured agrees to be responsible for a minimum threshold amount (same as the franchise clause).

The insurance company is liable to pay for damages only for the amount over the agreed amount. Let us continue with the same example:

Insurance Cover: Rs 50,00,000 Insurance Company’s Payment
Under the 5% Franchise Clause Under the 5% Excess Clause
Loss Claim: Rs 1,00,000 Nil (since less than Rs 2,50,000) Nil (since less than Rs 2,50,000)
Loss Claim: Rs 5,00,000 Rs 5,00,000 (since more than Rs 2,50,000) Rs 2,50,000 (Rs 5,00,000- Rs 2,50,000)

Conclusion

A franchise clause in marine insurance may be a fruitful decision, but it is always recommended to carefully consider all the options available and select the best suited for your business. The premium amounts of marine insurance policy may vary depending on the option selected. Also, understanding insurance terms plays a prominent role in decision-making.

Written By: PolicyBazaar - Updated: 28 December 2022

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Policybazaar for Business - Marine Insurance - Customer Reviews
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4.3/5
Based on 114 reviews
4.3
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Based on 114 reviews
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3.8 April 20, 2023
Anas
Great Experience
I recently purchased Marine insurance from Policybazaar for my shipping business and I must say I am thoroughly impressed with their service and coverage. From start to finish, the experience has been smooth and hassle-free.Thankyou.
Mizoram
4.3 April 03, 2023
Vaishnav
Provides Comprehensive Protection
When it comes to coverage, Marine insurance that i bought from PolicyBazaar has exceeded my expectations. It provides comprehensive protection for my cargo and vessels during transit, ensuring I can focus on my business operations with peace of mind. Thankyou.
Assam
4.3 March 17, 2023
Umang
Excellent Services
I highly recommend Marine insurance from PolicyBazaar website to anyone in the shipping or logistics industry. Their user-friendly website, comprehensive coverage, and excellent customer service make them stand out from the competition. With Policybazaar, I feel confident in navigating the high seas, knowing that my business is well-protected. Thank you, Policybazaar.
Chennai
4.3 February 28, 2023
Vishal
User Friendly Interface
The website's user-friendly interface made it easy to compare different plans and find the perfect fit for my business needs.Thanks
Gurugram
4.3 February 11, 2023
Parth
Prompt Services
I appreciate the transparency and honesty with which Policybazaar handled my claims. They were prompt in processing my claim and their claim settlement process was hassle-free.Thanks PolicyBazaar.
Noida
3.8 February 10, 2023
Rishabh
Exceeds Expectations
I recently had the pleasure of purchsing marine insurance from Policy bazaar website and I must say it has been an outstnding experience from start to finish. I am thrilled to share my positive customer review, as this truly exceeded my expectations. Thanks PB.
Jamshedpur
3.8 January 31, 2023
Arvind
Easy Navigation
The ease of navigating the Policy bazaar website and finding the right marine insurance policy was impressive. The website's user-friendly interface and intuitive design made it incredibly simple to compare various options, understand the coverage details and make an informed decision. I appreciated the transparency provided throughout the process. Thanks.
Ajmer
3.8 January 21, 2023
Vishal
Excellent Support
The customer service provided by Policy bazaar was decent. Their team was responsive, knowledgeable and went above and beyond to assist me at every step. Their professionalism and commitment to customer satisfaction were truly commendable.Thankyou.
Mumbai
4.3 January 11, 2023
Sanjeev Rathor
Efficient Process
When it came to claims processing, Policy bazaar demonstrated remarkable eficiency and effectivenes. I had an unfortunate incident during the coverage period and filing a claim was a breeze. The entire process was streamlined and their team guided me throuugh every necssary step, making it hassle-free. The promptness with which my claim was setled reflected their commitment to their customers' well-being and peace of mind. Thankyou.
Pune
3.8 January 01, 2023
Kunal
Comprehensive Coverage
I must mention the comprehensive coverage provided by the marine insurance policy I purchasd through Policy bazaar. It offered me the necesary protection and peace of mind. Thankyou PolicyBazaar.
Indore