Introduction of the Host
Mr.Harikumar is a freelance journalist with rich experience gained from working with leading periodicals and dotcoms. His association with leading financial portals has contributed greatly to his ability to deal with classroom sessions in the financial sector, especially investments. Currently, he is a columnist with some of the well known publishing companies. Some of his published works on mutual funds and insurance have got wide acclaim.

Class Schedule
2 Lessons a Month

MARINE INSURANCE
One of the high risk areas in the field of insurance is maritime perils. Perhaps this risk factor caught attention of shipping companies and those connected to it long ago. Thus Marine Insurance is considered to be the oldest form of insurance and is one of the vast areas covered in insurance. The subject gains more importance especially when the risk is high and the amount involved is huge compared to any other form of insurance.

Marine insurance policy is taken against perils of the seas, in connection with transshipment. The damage could be of properties or caused to a third party. Marine Insurance Act, 1963 governs the process and procedures of Marine Insurance. Special expertise is essential for finalizing the claim on marine insurance.

The perils for which policy is taken include piracy, captures, jettisoning, contamination, explosion, shortage, fire, etc. It does not usually cover normal actions of winds and waves.

One of the main features of this type of policy is that valuation is done on 'agreed value basis". The agreed value will include all the expenses incurred or expected to be incurred as well as profit margin. The valuation should have supporting proofs.

The fundamental principles of marine insurance are the following

1. Utmost good faith
2. Insurable interest
3. Contribution
4. Indemnity
5. Subrogation
6. Causa Proxima

(For explanations, you may refer back to the session "Essential Terms & Usages in Vogue" dated Nov.15, 2001)

Types of Policies:
There are two major divisions: Hull Insurance and Cargo Insurance

Hull Insurance:
It includes hull, machinery and freight. Types of losses can be Total loss or Partial loss. Eg. Sinking or destruction of a ship could be total loss. Collision / stranding can be partial loss. Hull insurance in India is controlled by Tariff Advisory Committee.

Cargo Insurance:
Cargo insurance is meant to cover the goods carried in the ships. The policy, as a rule, contains
1. Name of the insurer
2. Name of the insured
3. Subject matter of insurance
4. Period of Voyage
5. The sum assured

In marine insurance, high risk is attributed to tankers for the following reasons:
1. Highly inflammable
2. Oil spill
3. Grounding
4. Crude oil has corrosive effect on steel.

Types of vessels needing insurance are -
1. Tankers
2. Dredgers
3. Fishing vessels
4. Cargo liner and
5. Passenger ships.

According to the commencement and conclusion of cause of damage to the properties, marine insurance has been classified as:

1. Time Policy:
Time Policy is one, the validity of which starts on a particular point of time and expires at another. Eg: from Jan1, 2001 to Jan 1, 2002.

2. Voyage Policy:
Where the contract is to insure the subject matter 'at and from' or 'from', the policy is called voyage policy; ie. as soon as the ship leaves the port of commencement up to when the ship enters the port of destination OR before and after the ship leaves the port and until it touches the destination. (policy can be specifically mentioned 'at and from'/'from)

3. Valued Policy:
Here the policy is taken for a value as agreed upon by the insurer and the insured- not for time, not for voyage. Valuation can be done on any one of the following bases.

a) F.O.B - Includes all costs till the goods are carried on board.
b) Ex-factory basis
c) F.O.R - Includes all costs until carried unto the railway wagon
d) C.I.F - Includes costs, Insurance and Freight
e) C & F - Includes Cost and Freight

The scope of cover and exceptions and special exclusions are attached by separate clauses known as Institute Cargo Clauses (ICC).

4. Unvalued Policy:
The value here is decided later on. It can include cost of ship, freight, goods, insurable charges, etc.

5. Floating Policy:
Only the value is specified and not the name of the ship, etc.

6. Wager Policy
There is no insurable interest for the insured. These are invariably honoured by underwriters.

7. Annual policy
If, during a particular year, despatch of goods (quantity), an Annual Policy is preferable. The premium paid in advance would be adjusted at the end of every year.

8. Increased value policy
This policy covers the cost of goods which are to be bought from local market if goods are imported and are damaged to some extent. The increased value will be the difference between the current procurement price and the original price of goods when exported.

Like any other insurance, marine insurance also should be taken in utmost good faith. All known factors should be disclosed. Causa Proxima (proximate cause) also is strictly applied in this type of insurance.

Premium
The premium is usually arrived at, based on the past experience, type of package, and the type of policy taken. It is the duty of the underwriter to decide on the premium required to meet the contingent expenses and losses. For ships, age and weight have got a minimum standard. If the ships fall below the expected standard, there would be loading of premium. General Insurance Corporation (GIC) has the list of all ships for classification and approval. Lloyds Register (London) also has the full list.

Common Terms
Some of the common terms heard in Marine Insurance are:

Warranty: is a common phenomenon in marine insurance. Warranty is an undertaking by the assured that some condition shall be fulfilled or certain things shall not be done. Compliance of warranty is essential to absolve underwriters. However, it is a common practice that underwriters reinsure risks. Warranties can be express or implied. (Eg; that a ship will leave the port on --- this day. Examples for Implied warranty are sea worthiness and legality of voyage.)

Barratry: Intentional wrong doings by crew members, etc. Eg: Scuttling

Sacrifice: is applied in marine insurance as sometimes scuttling, allowing sea water to enter area under fire, etc. may be necessary to save the ship. These losses can be made good.

Salvage: Salvage is the compensation or reward to the salvor. This also means the lien of those properties which are saved by the salvor, at sea.

Most of the Marine policies, are freely assignable. An insured with insurable interest can assign the policy in favour of some one else. The policy will also stand in good stead when discounting invoices with bankers.

Note: In this session, only the imperative lessons are covered. This is supposed to impart a rudimentary knowledge of Marine Insurance to the readers.