Function of Marine Insurance - Coursework Example

Marine insurance Table of contents …………………………………………………………………………………..3 Introduction to marine insurance…………………………………………….3-4 Function of marine insurance ………………………………………………….4-5 The insured ……………………………………………………………………………..5 Risk covered…………………………………………………………………………… 5 Indemnity ……………………………………………………………………………….6 Compensation ………………………………………………………………………..6-7 Drawbacks……………………………………………………………………………….7 Conclusion……………………………………………………………………………….7-8 References………………………………………………………………………………9 Marine insurance Abstract Insurance is any method of risk management which is usually used to verge against the danger of a reliant, indefinite loss. It is the equitable transmission of the risk which may arise due to loss, from one unit to another which is paid. Insurer is the company which offers the services of compensation when a risk arises. Almost everything which exists whether it is an animal, human being, a building, a machine, or even money is usually exposed to some risks of different kinds. An animal can die of a disease or be injured and some items like money can be stolen and hence require some insurance to cover them. Introduction Marine insurance was developed 3,000 years ago by the Phoenicians who were the great traders around the Mediterranean Sea. This type of insurance covers the loss of vessels at sea when goods are transported regardless of the method of transportation. In cases where the owner of the cargo and the transporter are separate companies, the marine cargo insurance typically reimburse the owner of the cargo for different losses which may be continued by fire, shipwreck among other things though it usually excludes losses that can be recovered from the transporters insurance. Other elements which include time element which can extend the indemnity to overlook the loss of profit as well as other business expenses are also covered by the insurance. To indemnify is to restructure something into its original position which in this case is to put the marine business into the original state after some damage caused by fire. In indemnity policy, a claim can in no way be compensated until the insured has paid out some pocket to some third party. The compensation from the insurers takes the form of indemnity where the business is restructured after breaking down due to some calamities; most people adapt this system because it is guarantee in that it reorganizes businesses to their original positions. Pirates usually attack the ships and cause delays delivery thus causing a lot of losses in the business, they sometimes destroy the ship and hence the indemnity method is better as it can repair the ship in such circumstances. Restructuring the business into the previous position is the best form of compensation as the business owner cannot diversify the money to other activity apart from repairing the intended material. Function of the marine insurance Marine insurance is a very old practice in the conduct of sea trade. The purpose of Marine insurance has been to enable the ship-owners as well as the buyers and sellers of goods to carry on with their respective businesses while having a relaxed peace of mind in the course of trade. This is because the insurance reduces the burden that would otherwise be carried by the owners, which could arise due to lost or damage of goods as a result of many risks at the seas. Another secondary duty of the insurance therefore is to release the money which would otherwise be kept standby in reserves as a security measure in case of an emergency. Such money can be put into a more practical use such as purchasing other new ships, or in research and development and hence this is another function of the insurance in marine business. The other main function of the marine insurance is to plaster the loss of property incurred through piracy activities. These activities have a direct negative economic blow through frauds, delayed trips, and stolen cargos. Piracy have also triggered major environmental catastrophe for example in the Gulf coast oil spill which almost threatened the life of the aquatic animals. One major role of the marine insurance is to advice the ship owners and organizations on ways and means of reducing the likelihood of risks becoming a reality, thus helping to reduce the effects of risks in water. For example, the oil spill control in gulf coast can help to save the lives of fish which in turn saves the lives of human beings trough food security. It also helps the marine business men by encouraging the development and use of appropriate and profitable means in business of risk control. It also play a role of encouraging the business people to venture into marine business by giving them a peace of mind by ensuring the security of their transit goods in case of shipwreck in the sea. The insured The insurance cover the members who in this case are the ship owners and the operators or even the departure charters. The major concern of the marine insurers is the cover for some known measurable risks, which are the full and machinery insurance for ship proprietors, and on the other hand the cargo insurance for freight owners. Other covers include the third person accountabilities which include smash up to cargo, the ships liability after some collisions as well as the environmental effluence. Risks There are several risks covered under marine insurance. To begin with, the insured are covered against sea risks such as piracy, accidents where goods are damaged and lost just to mention a few. The war risk insurance is also considered in marine insurance cover which include; costs of repairing physical loss or damage to the vessel after an attack, the actual and constructive reimbursement, the coalition liability and expenses associated with claims. The risks covered by the insurance company are usually paid for by the insured. Indemnity Indemnity is a principle of insurance where the insured is only paid the extent of damage incurred. This does not entail replacing the entire freight or vessel but paying in cash the value for the time when the policy was taken. The ship owners as well as the business men in the marine business usually enjoy the security offered by the insurers in that they are compensated whenever there is a loss which is caused by what is covered by the insurer. In many cases, especially in the marine business, the insurers take the form of indemnity which makes sure that the insured is placed in the same position where he or she was before the occurrence of the damage for example when there is a fire outbreak. The party insured should not be better or worse off than when it was before the damage occurred. In this case, when the ship is damaged by the pirates let’s say by bombing, the insurer will have the mandate repair the ship to its original position but will not by a new one which might be expensive than the previous one. This means that any insurance company must not aim at making of profit in the process. Indemnity might take various forms which might include; the payment of money which equals the sum of the item lost, or the replacement of the damaged item, or the repair of the damaged item. Compensation Compensation refers to the case where the insurance company takes liability of the loss incurred on behalf of the insured. The compensation which in this case takes the indemnity is given depending on the mode of agreement and what is covered. These includes the hull and machinery, the protection and indemnity, the war risk among other risks which include the loss of charter hire can be compensated by the insurers when there is damage. The ship owners can also be compensated when there is a kidnapping for ransom and hence compensation can be done to any risk provided it is in the insurance cover. Compensation is also given to the companies involved as well as the entire environment in case of pollution for example if there is oil spill in the ocean then it is the responsibility of the insurer. Indemnity therefore cannot apply to the personal misfortune insurance or to life cover as a lost leg cannot be replaced neither can it replace a death child. In this case, the insurance seeks to reduce the suffering induced to individuals by accidents and therefore indemnity only applies to goods such as those in marine e business. Indemnity is very important to marine business as it is subjected to a lot of dangers ranging from fire, collision, delay, piracy, and pollution. Drawbacks One of the drawbacks in this system of insurance is that it does not provide insurance to life as it only deals with some things which can be replaced or reconstructed to their original position. It also covers extensive areas and hence this can lead to loss to the insurers or is inefficient for example in hull war risk, if the vessel is attacked with some goods it can be expensive and this may make the insurer to lose a lot. In the process of repairing the damage, the time taken during the repair period is not considered. The policy of indemnity is limited to covering only total losses instead of covering all partial losses including those caused by accidents in the sea such as wind, storms and waves or even other risks like fire and hence this is another disadvantage as it forces the business owner to look for other funds incase such accidents occurs. Conclusion In conclusion, the marine insurance adds the necessary element of financial security so that the risk of an accident occurring in the process of transportation does not inhibit the conduct of international trade. Compensation by the insurers takes the form of indemnity because every successful business owner would like to see his/her business restored to the original position even after severe damages to ensure progression and peace of mind. The indemnity form of insurance is the best method to cover large businesses though it does not give any profit to the affected business but only restores it to their previous states. References: Carey, F, H. (2007). Marine insurance: a series of lectures. Cambridge, Cambridge university press Francis D R, and McMeel, G. and Watterson, S. (2004). Marine insurance: law and practice. Haley T, L and Bacharach, G, J. (2008). The suretys indemnity agreement: law and practice 2nd ed. American Bar Association Hodges, S. (1996). 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