The Functions of Marine Insurance - Coursework Example

Running Head: MARINE INSURANCE Marine Insurance Contents Contents 2 Marine Insurance 2 Introduction of Marine Insurance 2 Functions of Marine Insurance 3 Who is Insured? 5 What are the Risks? 5 Compensation 6 Indemnity 6 Drawbacks 6 Conclusion 8 References 9 Abstract This paper will analyze the functions of marine insurance, risks obtained, the people been covered by the marine insurance, compensations and indemnity given and the drawbacks of marine insurance. Insurance is essential in risk management. It is the assurance that one shall get value in case of loss or damage to their goods. In this case, marine insurance is vital for a shipping company lest the company incurs too many costs as compared to the revenue. However, marine insurance is now more of been manifested in indemnity. Rather than one insuring their goods for their own safety, they insure for the second person, whereby incase the clients are harmed or lose anything with regard to the company, they are repaid for the loss and nothing more. In solving this problem, marine insurance should be strict on covering damage in case of harm to the insured goods that in this case would majorly be ships. In addition, the insurance should not be bent on settling the losses of the clients only. In the case where they may need to settle the two as a case of killing two birds with one stone; they could per take in third-party insurance that normally covers both the company and the client instantly. This will result in fair settlement of damages and compensation. This will do away with incurring high costs in the marine industry since their goods are insured and their clients are been catered for (Business Maps of India, 2012). The main function of marine insurance is to compensate the insured for loss or damage caused by the risk insured against. In many case the compensation by the insurers takes the form of indemnity. What do you understand? Marine Insurance Introduction of Marine Insurance According to (Robert, 1987, pp 5-10), insurance mainly usually involves the protection against a future foreseen loss. Marine insurance is therefore protection that usually involves the shipping companies. It is provided to ships, boats and the most vital part is the cargo that they transport. The marine insurance covers cargo which could be lost in case of a rough time at sea whereby it becomes necessary to dump some goods off the ship to prevent it from sinking. In this case, those whose goods were lost at sea will be covered by the marine insurance. Through marine insurance, ship owners and transporters can be sure of claiming damages especially considering the particular medium of transportation used. Among the various modes of transport used, that is, by rail, air, road and water, it is the water medium that worries the people concerned the most. This is in conjunction with the occurrences involved at sea. These occurrences are not only limited to natural causes but also other dangers that could cause grave damage and losses to the shipping company and the transporters. Say in the case of piracy, whereby the pirates jeopardize the possibility of the ship reaching the shore or they vandalize the ship, the ship corporation incurs heavy losses. It is thereby important that the interested parties secure their goods through marine insurance as a back-up plan (Robert, 1987, pp 10-35). Functions of Marine Insurance Recent evidence (Business Maps of India, 2012) shows that marine insurance has various functions that can be categorized into two major categories; that is, primary functions and secondary functions. The primary functions include; providing protection. This is one of the core purposes of marine insurance in the modern days. To secure cargo and shipping vessels from future risk; accidents and uncertainty that could arise especially considering the unpredictability of the sea. The uncertainties could include piracy, which is one of the main challenges facing the shipping industry. The second primary function is Collective risk bearing. In this category, marine insurance acts as a medium through which petite losses are divided among a larger number of people. Various insured peoples premiums are put together to cater for the insured individual who has incurred a loss. The third primary function is Evaluation of risk. Marine insurance is able to predict the risk involved over a given duration in the field. Through insurance, they can estimate the risk and thus determine the premium required to be paid by the insured in relation to the risk involved. The last primary function of marine insurance is by providing certainty. Through marine insurance, the shipping corporations are able to change their uncertainties into certainty through the belief that their cargo and vessels are well catered for in case of any unforeseen risks at sea. On the other hand, there are secondary functions that include Coverage of large risks with small capital. Marine insurance assuages the Shipping Corporation and transporters from hefty security investments. This is by enabling them to secure their property by paying small premium amounts in intervals for large risks. The second secondary function is prevention of losses. Marine insurance helps in the prevention of losses by advising the insured parties involved to be careful with their property to prevent unfortunate aftermaths. This can be done by either organizing conferences for educating the ship companies on was to prevent any future loss. For example, there is protocol that captains are supposed to follow with regard to the rules and policies of the insurance policy. The third secondary function is that the insurance helps in development of larger industries. Marine insurance encourages the development of large shipping organizations that were not created in the past due to fear of incurring great losses and expenses. Through marine insurance, they feel that they are established and provided for security in the market (Business Maps of India, 2012). Marine insurance has various other functions, which include acting as a savings and investment tool. Through marine insurance, the insured companies are restricted from unnecessary spending. There is the benefit of exemption from income tax, it is considered as a wise investment plan since the insured is not necessarily doomed to be damaged or lost. Another main function of marine insurance is that it acts as a means of earning foreign exchange. Marine insurance is an international business. Therefore, any country can earn benefits from a foreign country that has insured its goods in its organization. Thus, foreign exchange can be obtained by way of issue of marine insurance policies. Who is Insured? Statements from (Susan, 1996, pp 410-450) confirm that an insured party is usually the person or entity that is eligible for compensation in case of loss or damage to a particular insured item. This act is usually done by the insurer under the terms of a contract between the insured and the insurer usually called an insurance policy. Normally, the insurance cover is made possible due to the premiums the insured has been paying the insurer on a periodic basis. In the case of marine insurance, the insured party would be the shipping company. In case of damage to any of the shipping vessels, they are eligible for compensation or repair of the damaged ship. This insurance also covers the transporter whereby, his or her cargo is insured. In case of any loss or damage of the property that may occur in its route to its set destination, the transporter or shipping corporation is eligible for compensation on the cargo. Those are the insured parties when it comes to marine insurance. What are the Risks? Marine insurance protects one from several risks in the shipping world. These are those such as repossession. This is whereby; a foreign government prevents an individual or an organization from repossessing or re-exporting some assets that the individual had brought into the country in the very first place. This could be cargo of sorts. The second risk that can be obtained is the political violence. In the case whereby, there are pirates at sea or war at sea, lots of expenses could be incurred in the occasion that occurs and these could even run a person out of business thus it safer to be insured and have those risks covered. Finally, non-delivery by foreign supplier is another peril. In case a buyer was to transport goods through the sea from a foreign supplier and the supplier fails to deliver the goods, the client will incur great losses and be depressed but through marine insurance, the buyer can be given compensation for the missing goods (Susan, 1996, pp 510-516). Compensation This is an act of giving something that could be in form of money or property to someone to take place of one that is lost, damaged or injured. This is the transaction behind marine insurance whereby one is given compensation for a lost cargo or vessel damaged with a similar entity or item (Soyer, 2005, pp 51). Indemnity This involves compensation of goods lost or damaged. Most insurance policies rely on the concept of this legal philosophy. On the other hand, indemnity can be defined as protection from claims of loss and damage filed by another person; whereby the afflicted person deals with the insurer and can only file a case if dissatisfied with the settlement that seldom happens (Kyriaki, 2007, pp 157-160). Drawbacks According to (Robert, 1987, pp 60), one of the great drawbacks in the marine insurance industry is the uncertainty of the sea. It is beyond human control and thus the amount of risk can not really be controlled since no one can really calm a stormy sea or prevent any other natural inhibiting occurrence at sea. That explains why marine insurance industry is not so developed but in cases, taking the chance is inevitable. Conclusion Marine insurance also helps one in terms of allowing the insured to choose the insurance plan as per the size of his ship, the routes his ship takes in transportation of cargo and many other minor factors that could majorly affect the transporter. There are usually various plans and policies that go about not only insuring the cargo but also the shipping vessel and thus one has the authority and freedom to pick a policy that suits him best. However, it should be noted with great caution that although marine insurance is positive and brings with it many benefits, it still remains the strictest and trickiest of insurances (Susan, 1996, pp 520). References Susan, H., 1996, Law of marine insurance, London : Routledge, Pp. 407-520. Soyer, B., 2005, Warranties in marine insurance, London: Routledge, Pp. 50-62. Robert, H., 1987, Introduction to marine insurance, United Kingdom: Witherby, Pp. 1-75. Kyriaki, N., 2007, The principle of Indemnity in Marine insurance Contracts, New York: Springer-Verlag Berlin Heidelberg, Pp. 150-205. Business Maps of India, 2012, Functions of insurance, Retrieved 14 Mar. 2012 from . Read More