Everything you need to know about marine insurance

In the complex world of international business, managing risks is a fundamental principle. Proper planning and intervention are essential for mitigating risks associated with overseas cargo. One critical tool in this risk management arsenal is marine insurance. This policy is designed to cover the myriad risks that can arise during the transit of goods, offering peace of mind to businesses engaged in global trade.

What is Marine Insurance?

Marine insurance is a contract of indemnity that provides coverage against loss or damage to ships and cargo during transit. This transit can occur via various modes, including rail, road, sea, air, and courier services. The insurance policy is not confined to maritime transport, despite its name. It encompasses all forms of cargo transit—by road, rail, water, and air.

The coverage typically includes:

• Damage to the ship: This includes any physical harm to the vessel itself.
• Damage to hull and machinery: It covers issues related to the ship’s structural components and machinery.
• Loss to cargo during shipment: This protects against damage or loss of the cargo while in transit.

Although the term “marine” might suggest a focus solely on sea transport, marine cargo insurance is broader and more inclusive, covering various types of transit.

Why is Marine Insurance Policy Important?

The shipping industry faces numerous challenges that can jeopardize cargo and disrupt business operations. These challenges include:

• Piracy and Theft: Increasing incidents of piracy and theft threaten cargo security.
• Accidents and Collisions: Human error and unforeseen accidents can result in significant losses.
• Loading and Unloading Damage: Cargo can sustain damage during these critical processes.

Marine insurance plays a pivotal role in addressing these risks. By accepting liability for goods worth billions of dollars, marine insurance builds redundancy into distribution networks, ensuring that businesses can recover from losses and continue operations with minimal disruption.

Consider the case of ABC Ltd., a sports merchandise company based in Mumbai. Last year, a consignment worth Rs.50 lakhs was lost due to a cyclone during sea transit. Without marine insurance, ABC Ltd. had to bear the entire loss, which could have been mitigated had they been covered by a marine insurance policy. This example underscores the importance of having adequate insurance coverage to safeguard against such unforeseen events.

Types of Marine Insurance

Marine insurance policies can be broadly classified into two categories: Open Policies and Specific Policies. Each type serves different needs and offers various benefits.

Open Policy

An open policy is ideal for large commercial firms that handle numerous transactions. This policy provides continuous and automatic protection for all consignments within the agreement period, typically one year. It simplifies the process of insuring large volumes of trade and offers several advantages:

• Automatic Coverage: All consignments are covered without the need for individual policies.
• Renewal and Refunds: The policy can be renewed, or a new policy can be issued if the original sum insured is exhausted before the policy expires. If the policy is canceled before the period ends, a proportionate premium refund is available.

Features of Open Cover

• Agreement Duration: Generally set for 12 months.
• Pre-agreed Terms: Rates, terms, and conditions are established in advance.
• Advance Payment: Funds are remitted in advance for projected exports and imports.
• Regular Declarations: Details of all shipments are declared periodically.
• End of Coverage: The agreement ceases upon expiry or exhaustion of the insured amount.

Specific Policy

A specific policy is tailored for individual shipments and is valid for a single transit. It is typically arranged before the voyage begins and covers specific details of the shipment. This policy is beneficial for businesses requiring insurance for particular consignments or voyages. The features include:

• Targeted Coverage: Covers only the particular consignment in question.
• Customizable Terms: Terms and coverage details are specified based on the shipment's needs.
• Pre-Transit Arrangement: The policy must be arranged before transit begins, though it can be issued retroactively with underwriting approval.

Coverage Description

• All Risk: Comprehensive coverage that includes risks such as theft, damage from fresh and rainwater, and any other risk not specifically excluded.
• Basic Risk: Limited coverage that excludes certain risks like theft and water damage.

What Marine Insurance Policy Does Not Cover

While marine insurance offers extensive protection, certain risks are not covered under these policies. These exclusions include:

• Wilful Misconduct: Deliberate actions leading to loss or damage are not covered.
• Ordinary Leakage and Wear & Tear: Routine wear and tear or leakage are excluded.
• Packing Issues: Insufficiency or unsuitability of packing and inherent vice are not covered.
• Carrier Insolvency: Loss due to the insolvency or financial default of the carrier is excluded.
• Weapons of War: Damage resulting from weapons of war or nuclear risks is not covered.

Why Choose DgNote for Your Marine Insurance Needs?

DgNote stands out as a global technology company specializing in optimizing supply chains through innovative and cost-efficient solutions. Their expertise extends to offering a range of commercial InsurTech solutions, including marine insurance, warehouse insurance, credit insurance, and liability insurance. DgNote’s FinTech solutions, such as supply chain finance, bill discounting, and dynamic discounting, further enhance their service offerings.

What sets DgNote apart is its commitment to leveraging advanced technology to provide smart and user-friendly solutions. With a culture of innovation, excellence, and teamwork, DgNote is well-positioned to deliver cutting-edge insurance solutions tailored to the needs of businesses in the logistics industry.

Marine insurance is an essential tool for managing the risks associated with international trade. By offering coverage for a wide range of transit modes and risks, it helps businesses protect their cargo and maintain operational continuity. Choosing the right marine insurance policy, whether it’s an open policy or a specific policy, can significantly impact a business’s ability to handle unexpected losses.

FAQs

1. What types of cargo can be covered under marine insurance? Marine insurance covers a wide range of cargo types, including goods transported by road, rail, sea, and air. The coverage extends to various forms of transit and is not limited to maritime transport.

2. How does an open policy differ from a specific policy? An open policy provides continuous coverage for all consignments within a set period, typically one year, while a specific policy is tailored for individual shipments and is valid for a single transit.

3. What are the exclusions in a marine insurance policy? Exclusions typically include wilful misconduct, ordinary wear and tear, packing issues, carrier insolvency, and damage from weapons of war.

4. Why is it important to choose a company like DgNote for marine insurance? DgNote offers advanced InsurTech solutions, leveraging technology to provide smart, cost-efficient, and customer-centric marine insurance services. Their focus on innovation and excellence ensures comprehensive coverage and tailored solutions for businesses.