How is the Premium of Marine Insurance Policy Decided?
Marine Insurance is broad in scope as well as very wide and probably this is the reason why there is a specific categorization of different types of marine insurance plans. As per the requirements and criteria of transporters a specific type of marine insurance policy can be selected. However, many times, the customers of marine insurance do not understand how the premium of a marine insurance policy is calculated. Here, we are going to discuss the factors that affect the premium of a marine insurance policy and how is it calculated, but before that let us discuss the reason for opting for marine Insurance and its type:Read more
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Reasons to Select Marine Insurance
Any insurance is designed for managing risks at the time of unfortunate situations such as accidents or damage to environment and property or life loss. When it comes to marine transportation like ships, the stakes become high as there are many factors involved in the operation, i.e. risk to lose expensive ships or valuable cargo, the risk of environmental damage because of oil pollution, and the risk of losing lives of the seafarers because of accidents.
To make sure all the risks are managed without any financial crisis when they are required the most, various marine insurance policies are made mandatory for ship owners and ships to take.
Types of Marine Insurance Plans
Many marine insurance companies provide different types of marine insurance plans for charters, cargo owners, and ship owners:
- Hull Insurance
- Machinery Insurance
- Indemnity & Protection Insurance
- Liability Insurance
- Freight, Defence, and Demurrage Insurance
- Voyage Policy
- Mixed Policy
- Time Policy
- Unvalued or Open Policy
- Port Risk Policy
- Valued Policy
- Wager Policy
- Single Vessel Policy
- Floating Policy
- Block Policy
- Fleet Policy
Factors that Decide the Premium of Marine Insurance
The cost of premium decreases or increases as per the estimates that are made by the insurance providers. The premiums are estimated as per the following parameters:
- Value of the goods
- Nature of the goods
- The inherent risk that your product can possess
- Construction, route, and type of the vessel
- Your good’s destination
- Any strike, political risk, civil commotion, and riots that can hamper the delivery of the goods.
- History of incidents happened with the insured.
Some of these parameters are explained below:
- Type and Construction of the Vessel: The fitness and quality of the vessel play a major role. The underwriter will be keen to know the vessel’s descriptions like its owner, its structural strength, the material used for its construction, and the adaptability of the vessel for carrying types of cargo and the age of the vessel.
- Natural Forces: While some of the natural disasters are seasonal, some are permanent as well. Some of the ports are as well known for insufficient depth, lack of protection from tides, absence of strong anchorage, etc.
- Policy Condition: Various clauses can be added to increase or limit the liability of the insurer. Some of the policies can cover total loss or some can cover the partial loss. So as per the coverage, the premium of the policy is decided.
- Vessel’s Nationality: The insurance provider needs to know the nationality of the vessel. This is because the nationality of the vessel decides the dependency of the countries over the ocean trade. The vessel's nationality shows the skills of the crew and masters. In addition to this, the rate of premium depends on the vessel's age, its traits, and risk coverage.
An Example of Premium of Marine Insurance:
Let us discuss an example to understand how the premium of a marine insurance policy is calculated and hence decided. A company, ABC Corporation, was established in the year 2010. ABC Corp is an electronic company based out in Pune that supplies and exports electronic products across India and abroad. This company manufactures the home theatre system, LED, and LCD monitors. The company got a huge contract last year for exporting electronic items including LED monitors and home theatres to Malaysia.
This consignment worth approximately $200 million through the sea, ACB Corporation decided to opt for a marine insurance policy. The insurance provider emphasized purchasing a comprehensive insurance plan and has considered different factors such as the value and nature of goods, the inherent risks, and the distance that the ship has to cover are as well considered for computing the rates of premium. The insurance provider has as well asked the company to provide details related to the nationality of the vessel and its type. Since the company was using two vessels, the underwriter of the insurance provider checked these two vessels for knowing their quality.
In his checking, the underwriter found that one of these two vessels was slightly damaged while the other was new and was all fine. The insurance provider is as well taken care of the structural strength of these vessels for computing the final rate of the premium.
The Final Words!
Marine Insurance is one of the areas that require a lot of thought and complex and straightforward dealings for achieving the common ground of deciding the premium rate. The aforementioned are the factors that most of the marine insurance companies consider for deciding the premium of the marine insurance policy.