Marine Finance and Insurance - Case Study Example

Introduction Marine insurance falls under the category of property insurance and mainly covers any damage or loss of ships. It also covers the loss or damage of any cargo, terminals, and other property by which cargo is transferred, held or acquired between the points where they were picked to the destination point. Marine cargo insurance is a sub-branch of the marine insurance that takes care of the cargo regardless of whether the cargo belongs to the carrier or to a different party. If the corporation that owns the cargo is different from the carrier of the cargo, marine cargo insurance compensates the owner of the damaged cargo in case some damages occur on the cargo. Some of the calamities that can cause damage include fire, collision, sinking, mutiny, piracy, shipwreck, etc. however, when the marine cargo insurance compensates the owner of the cargo, it excludes the payment of any items of cargo that can be recovered by the carrier or that will be taken care of by the marine insurance. Marine insurance also covers all the expenses that the owner of the cargo uses as a result of the delay that the loss covers. The profit that the owner of the cargo could have gained had the cargo reached him or her in time is also taken care of by the marine insurance. This paper aims at covering the marine insurance markets, the market practices, and the risks insured. Also included is a critical appraisal of a marine insurance that is likely to be required as security for ship financing by a financier. Marine Insurance Market, Market Practices and the Risks Insured The exact reason why an individual who wishes to transport his or her cargo by ship needs to know about marine insurance is that it will help you protect your cargo form the point of origin to the point of destination. Two ways exist in which a businessman can transport his or her cargo: wet marine also called waterborne cargo or as dry marine also called land transported cargo (Gaebler, 2009). For small businessmen who regularly transport cargo overseas, they are supposed to use inland marine insurance that protects cargo that is transported by via domestic transit. The process by which cargo is transported to its destination involves changing hands many times and thus an inland marine insurance is very important. An inland marine insurance ensures that if the cargo gets lost in the process of shipment, compensation can always take place regardless of the individual who was in possession of the cargo when it got lost. Inland marine policies fall into two categories and each of them is designed to take care of shipping related losses. These are the filed policies and the non-filed policies (Gaebler, 2009). Filed policies are used to cover the direct loss of physical property and feature insured individuals who have suffered similar losses. For the non-filed policies, the direct loss of cargo is covered but this time round, compensation is allowed on only that property that had a specific cause of loss. The non-filed policies are very customizable and hence any type of property being transported can be covered by these policies. Other kinds of marine policies include the voyage policy that one applies for to cater for a specific trip (Horward, 2006). Compensation can only be made for the insured item if loss or damage took place when the items were being transferred. This policy is most suitable for cargo insurance. A time policy is covers the insured property for a given period of time. The maximum amount of time that most insurance companies are willing to cater for a property is twelve months. This type of policy is best for insuring ships. A floating policy helps individuals who are regular shippers of merchandise and it takes care of goods that are shipped in different shipments within a given period of time. A port policy covers a ship for the period that the ship is in a particular port. The fleet insurance policy helps insure several ships that belong to one owner to be insured under the same policy (John, 2002). Time policy and voyage policy can also be combined to form a mixed policy where both the ship and the cargo are insured under this policy. Like any other insurance policy, marine policies require the insured party to provide some deductibles (Gaebler, 2009). This amount is paid every time that an individual is transporting cargo. For the frequent individuals who transport cargo overseas, a given amount of money may be a requirement that the individual may be required to pay every time that his or her cargo is about to be shipped. A standard amount of deductible doesn’t exist and thus any individual who wishes to transport cargo needs to consider the deductions carefully before deciding the amount to pay. The language that is used in describing the deductible is also very important as it may limit the liability that the insurers incur (Gaebler, 2009). The basic types of insurance are the protection and indemnity risk, marine hull and machinery, and mortgage interest. Marine hull and machinery covers for damage the vessel itself, its machinery and equipment (Chwee, 2001). Protection and indemnity risk covers the third party claims. This could include damage to cargo, fixed and floating objects, pollution claims, crew and injury claims, etc (Stephenson, 2006). The mortgage interest insurance covers the vessel but this type of insurance is taken with a different insurer who is not insuring the vessel. However these are not the only insurances that a financier may be looking for. Others include consequences of war that are covered by the war risk insurance. Insuring conditions for each of the types do exist that ensure that compensation is genuine both to the insurer and the insured. For compensation to take place in case of damage or loss of the insured property, the insured is required to answer questions such as the exact cause of damage or loss of property, the proximate cause of loss, whether the proximate cause is an insured peril, etc (Kyriaki, 2007). Marine Insurance: The Security Solution for Ship Financing By a Financier Insuring of ones cargo is the most important step that an organization needs to take. The organizations that own the vessels that carry cargo also need to insure their vessels against damage and accidents. Modern day marine professionals are facing great risks such as violent crime, politically motivated detention, terrorism, etc (Solomon, 2008). these risks are more likely to lead to the loss of property and without a marine insurance cover, ones property might get lost especially when all other individuals have their property insured. Joining a company that insures its property against the above risks gives the some peace of mind to the owners of property, the employees of the company, and all other people who have interests in the company. When cargo is insured by some marine insurance, all the consequences of cargo loss are well taken care of and in case the cargo gets lost during transition, one is almost sure that compensation will take place. However, the right procedure for insuring cargo is very important as without it, compensation may not be an assurance. Of late, there have been some unprecedented piracy activities in Somalia. Ships have been kidnapped for purposes of ransom. Other cases of ships being held for ransom have been reported in Malacca Straits where these forms of crime have become a form of a business for the involved thugs. Assuming that an individual have been transporting his or her cargo by a ship and neither the ship nor the cargo is insured by a marine insurance, such an incident might lead to great loss of property which is more intense than the little money that one may be required to chuck for insurance purposes. Marine insurance is the best option for security purposes of cargo that is transferred by ships both for small businesses and large businesses. Marine insurance companies have developed some insurance policies that are aimed at covering cases of piracy where damage of vessels and cargo in piracy can be compensated (Malcolm, 2005). Another reason why a marine insurance is important is the fact that an individual needs not follow the ship everywhere it goes. The moment your cargo gets in to the hands of the shipping company, you can leave the place and you are assured that the cargo will get at the destination point and in case it doesn’t get there for damage or loss reasons, you will be compensated. The compensation covers not only the cargo itself but also the profit that could have been acquired had the cargo reached at the appropriate time. The recent growth in the market for export products has led to an increased use of ships by organizations to transport products and raw materials to different destinations. Companies from the UK are the dominants of these businesses and a need for insuring the vessels and the cargo that they carry is very important. Shipment companies such as the Towergate Mardon marine insurance specialists are actively involved in evaluating the best value insurance requirement that they need to provide to their clients. Due to the high demands in insurance services, application of insurance services have now been made online where one only spares a few minutes to get a marine insurance cover quickly and efficiently. Financiers are currently using insurance policies to secure their own transactions (Matthew, 2000). How Shipping Company Can Approach its Insurance Needs For a company that has three or four ships that need to be insured, it first of all needs to know the principles of marine insurance that will apply to it (Rose, 2004). The company should identify a competent insurer where the vessels will be insured under the hull and machinery. The company will also insure the cargo that the vessels will be transporting. The process involves some complex circumstances that need specific arrangements for the marine to be viable. The rates that the company will be required to pay will depend on the nature of cargo, the vessels, and the conditions of navigation (John, 2002). The company should also be cautious to use the appropriate words in the process so that in case of a loss or damage, compensation can be done fully and without complications. In most cases, the value that the insured gets is already agreed upon by the insurer and the insured (John, 2002). The company should therefore ensure that their property is well valued and by the appropriate insurance company. A study of the available policies will help the company know the most effective policies for its vessels and cargo depending on the cargo that it will be transporting. Conclusion Marine insurance is a type of insurance that is used to cover any damage or loss to ships, cargo, terminals, and other property by which cargo is transferred, held or acquired between the points where they were picked to the destination point. The owners of ships need to have a lot of knowledge about marine insurance so that they can protect their ships and the cargo that the ships transport to different parts of the world. A marine insurance policy ensures that in case the owner’s goods get damaged or lost during transportation, the owner will be compensated for the loss suffered. Currently, there is high market for the insurance companies due to the high rate of exportation especially from the UK. Some of the calamities that can cause damage include fire, collision, sinking, mutiny, piracy, shipwreck, etc. All these are well covered by all marine insurance companies and the choice of the policy that an individual can apply for depends on the individual’s needs and property. For financiers who believe in at most good faith, marine insurance is the solution to their ship financing. If a small shipping company in the UK has a few vessels, the insurance needs of such a company will depend on the vessels and the cargo that the vessels will be transporting. References Chwee, H. T. (2001). Financing for entrepreneurs and businesses. Oxford: Oxford University Press, 373-375. Gaebler, V. (2009). Marine Insurance for Entrepreneurs. Retrieved from http://www.gaebler.com/Marine-Insurance.htm on 05-August-2009. Horward, B. (2006). The Law of Marine Insurance. Oxford: Oxford University Press, 456-461. John, W. S. (2002). Marine Insurance. Retrieved from http://www.marlegal.com/mlins.html on 05-August-2009. Kyriaki, N. (2007). The Principle of Indemnity in Marine Insurance Contracts. Princeton: Princeton University Press, 134-136. Malcolm, A. C. (2005). Policies and Perceptions of Insurance Law in the Twenty-First Century. Oxford: Oxford University Press, 373-375. Matthew, M. (2000). Brokers View: All in good Faith. Retrieved from http://www.tfreview.com/xq/asp/sid.0/articleid.4E9D0AA6-0A16-4B68-8C60-8F5E6BAB852A/eTitle.BROKERS_VIEW_All_in_good_faith/qx/display.htm on 05-August-2009. Rose, F. D. (2004). Marine Insurance Law and Practice. London: Jones & Barlett. 782-783. Solomon, S. H. (2008). Marine insurance. New York: Macmillan publishers, 144, 209. Stephenson, H. (2006). Shipping Financing. New York: Macmillan publishers, 147-154. Read More