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Marine Insurance : Importance, Types, Advantages & Disadvantages

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What is Marine Insurance?

Marine insurance is a contract in which the insurer agrees to compensate the insured against maritime losses in the way and to the extent agreed upon. Maritime insurance protects against loss caused by marine hazards or perils of the sea. Marine risks include ship collisions with rocks, ship attacks by opponents, fire and capture by pirates, and the captains’ and crew’s activities. These risks result in ship and cargo damage, destruction, or disappearance, as well as non-payment of freight. So, marine insurance protects the ship’s hull, cargo, and freight. 

In a marine insurance contract, the insurer (also known as the underwriter) agrees to provide payment to the insured (often the owner of a ship or cargo) in the case of a complete or partial loss at sea. The insurer pays a certain amount in consideration for the guarantee and protection he receives. Protection against loss caused by marine or marine perils is provided by marine insurance. 

Importance of Marine Insurance

Marine insurance coverage is important since it allows ship owners and carriers to be sure of claiming losses, especially when considering the form of transportation used. Of the four modes of transportation – road, rail, air, and water, water causes the most concern to transporters, not only because of natural occurrences that have the potential to harm the cargo and the vessel but also because of other incidents and attributes that could cause a huge loss in the transporter’s and the shipping corporation’s financial casket.

Another crucial element of having marine insurance is that a transporter may customise the insurance plan based on the size of his ship, the routes that his boat travels to transfer the goods, and many other little details that can have a significant impact on the transporter. When dealing with the scope and range of marine insurance, a ship’s captain must adhere to strict procedures in terms of the route used and the time required for the cargo and the vessel to arrive at the planned destination port. As a result, it is critical that a ship’s captain follows the established routes in order to avoid a failed insurance contract owing to an unfortunate loss caused by a deviation in the route. This would enhance the captain’s caution and reduce the risk of losing important insurance claims due to inadvertence and negligence. For Example, a ship colliding with a rock or being attacked by enemies, the risk of having commodities stolen, etc. 

Types of Marine Insurance Policies

1. Ship or hull insurance: Due to the numerous risks which are faced by ships at sea, the insurance policy is designed to reimburse the insured for losses caused by ship damage.

2. Cargo Insurance: The ship transporting cargo faces several risks, including cargo theft and lost goods at the port or during transit. As a result, cargo insurance is required to cover such losses.

3. Freight Insurance: If the cargo does not arrive at its destination due to any kind of loss or damage during transportation, the shipping company will not get paid for the freight charges. Freight insurance assists in reimbursing freight losses caused by such incidents.

Main Elements of Marine Insurance Contract

1. Principle of Utmost Good Faith: The marine protection policy is based on the concept of extreme confidence or utmost good faith, which clearly illustrates that while filling out the marine insurance, the holder should provide accurate information. Similarly, the insured should not retain any material details. If the candidate hides or covers critical information, the marine insurance agency has the right to reject the insurance application.

Under the Marine Insurance Acts of various countries, the insured is required to disclose all important information connected to the risk in a clear and accurate manner. A substantial fact is one that would affect the decision of a prudent Underwriter as to whether or not to engage in a contract at all.

Alternatively, it would influence a prudent insurer’s decision to proceed with the insurance, as well as with the extra price and terms. Apart from the responsibility of transparency, the insured must act in good faith toward the insurer during the term of the contract.

2. Principle of Insurable Interest:  Any “insurable property,” which includes a ship, cargo, or other movables subject to marine risks is described as insurable interest. Thus, the property insured must be destroyed or lost as a consequence of maritime perils, and the assured must have some legal relationship with it in order to gain from its preservation or be prejudiced by its loss or destruction. In the case of marine insurance, the assured’s interest must exist at the moment of loss occurred, even if it did not exist when the insurance cover was executed. This is significant because goods can be sold while in transit under Marine Insurance.

3. Principle of Indemnity: “A contract of marine insurance is an arrangement in which the insurer agrees to indemnify the assured in the manner and extent agreed upon.” The essential principle of insurance is that “the assured should find himself in more or less the same financial situation as he was before the loss. In other words, the insured may not get more or less than the real amount of damage suffered, and the assured may not benefit from the loss. As insurers cannot be expected to reinstate or replace the covered property, they must instead pay a specified value considered “reasonable compensation. A marine insurance contract provides for a predetermined sum subject to specific contract clauses. The amount of indemnity granted under the contract is decided by whether the policy is “valued” or “unvalued.”

4. Principle of Proximate Cause: The principle of Proximate Cause is applied to Marine Insurance. Insurer will be liable for the loss only when such loss is proximately caused by the sea perils, which are stated in the policy. For example, the nearest cause of loss will be considered if a loss is caused by several reasons.
When determining the insurer’s liability, the proximate cause is evaluated first. As a result, if the proximate cause of a loss is a known insured risk, the insurer must pay the insured. It means that if the proximate cause of the loss is insured, the insurer is obligated to pay the insured compensation.

Advantages of Marine Insurance:

  • Marine insurance helps businesses manage risks without worrying about their finances by preventing financial loss for products in transit. No matter where in the world the commodities are, they are covered by marine insurance. An annual or one-time trip cover can also be purchased.
  • When the items are taken out of the warehouse and transported to the port and beyond, they are covered by marine insurance. Marine insurance policies are made to be assignable due to the fact that the items frequently change hands between people or businesses.
  • Depending on how frequently you ship goods, marine insurance policies can be purchased on a per-trip or annual basis, unlike other insurance policies that call for annual coverage. Companies that import and export items frequently typically pay lower annual rates.
  • Although there are numerous maritime insurance plans, they all typically cover a variety of dangers. If you choose complete coverage, for instance, you will be safeguarded against dangers from the time the products leave the warehouse until the port and beyond.

Disadvantages Marine Insurance:

  • Marine insurance can be expensive due to the amount of products involved and the hazards associated.
  • In cases where there is personal interference, claims will not be paid.
  • Because most customers won’t tolerate doing business with a firm operating without maritime insurance, getting marine insurance may be your only option.


Last Updated : 10 Jan, 2024
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