Meaning, Nature, Subject Matters and Principles of Marine Insurance
Marine Insurance is one of the oldest form of insurance. It is the insurance against loss by damage or destruction of cargo, freight, and merchandise. It is the means or instruments of transportation and communication whether on land, sea, or air. (Webster)
Marine insurance is very important because through marine insurance the shipowners and transporters can be sure of claiming damages considering the mode of transportation used. The four transportation modes are – road, rail, air, and water. A contract is made between the insurance companies and insured against a certain amount of premium to protect from the risk of waterways, which is known as Marine insurance. It is concerned with overseas trade. International trade involves transportation of goods from one country to another country by ships. The persons who are importing the goods will like to ensure the safe arrival of their goods. The shipping company wants the safety of the ship. So marine insurance ensures the coverage of all types of risks which occur during the transit.
Marine insurance is a safe haven for shipping corporations and transporters because it helps to reduce the aspect of financial loss due to loss of important cargo. It also helps to bring together the transporting companies and the receiving parties, the duty, dedication and the straightforwardness of the insurance companies. ( Marine insight)
Nature of Marine Insurance
Marine insurance has been defined as a contract between an insurer and the insured whereby the insurer undertakes to indemnify the insured in a manner so, the interest thereby will be agreed. It is the contracts of insurance upon vessels of any description, including cargoes, freights & other interests which may be legally insured. Whatever be the transit by land, water or both and whether or not including warehouse risk or similar risk included among the risks insured against in marine insurance policies. It has two branches:
a) Ocean Marine Insurance
Marine Insurance was started during the middle ages in Italy and then in England. Ocean marine insurance covers the perils of the sea. Travelers continue to monitor the ever-changing landscape of the ocean marine industry to stay in step with the needs. Ocean Marine Insurance is one of the strongest companies in the marketplace today.
b) Inland Marine Insurance
Marine insurance is one of the oldest forms of insurance. Inland marine insurance is related to the inland risks on the land. It has developed with the expansion of trade. In modern time marine insurance business is well organized and is carried on scientific lines. Inland marine insurance is available standalone or can be packaged with other coverages. (Agrawal)
Subject Matter of Marine Insurance
The marine insurance may cover three types of things:
a) Cargo Insurance
The person who is importing and the person who is sending the goods are interested in the safety of goods during the sea journey. The goods to be insured are called ‘cargo’. It is insured by the owner and insurance of goods shipped through waterways is known as cargo insurance. Any loss of goods during the journey is indemnified by the insurance company. The goods or cargoes shipped to a foreign country are exposed to the perils of the seas. The goods are generally insured according to their value and some percentage of profit can also be included in the value. The policies of cargo may be special, reporting and floating. The special policy is only for one shipment.
b) Hull Insurance
The ship is a very important subject matter of marine insurance. The word Hull refers to the body of the ship or vessel. The ship exposes a number of risks like a cyclone, collision, and arrest by foreign naval power. The insurance which protects the shipowner against the loss of the ship is known as hull insurance. In Hull Insurance, the ship is insured against any type of danger. If the ship is damaged, the owner of the ship gets indemnity from the insurance company. The ship may be insured for a particular trip or for a particular period.
c) Freight Insurance
The shipping company has an interest in freight. Freight insurance is one of the subject matter of marine insurance. The freight may be paid in advance or on the arrival of goods. If the goods are lost during transit, the shipping company will not get freight. The shipping company may insure the freight to be received which is known as freight insurance. When the cargo pays freight at the time of shipment of goods, the ship owner losses the freight. They do not reach the port of destination. The ship owner guards against possible loss of freight by freight insurance. (Malhotra)
Principle of Marine Insurance
Some of the principles related to marine insurance are as follows:
1. Utmost Good Faith
The marine contract is based on utmost good faith on the part of both the parties. It is one of the important principles of marine insurance. The insured should give full information about the subject matter to the insurer. He should not withhold any information.This principle is based on the insured than on the underwriter. A party should act in good faith otherwise, the other party may cancel the contract.
2. Insurable Interest
The insured should have an interest in the subject matter when it is to be insured which means insurable interest. At the time of acquiring a marine insurable policy, the insured may not have an insurable interest. He should have a reasonable expectation of acquiring such interest. He should be benefited by the safe arrival of commodities.He should get the compensation amount of the loss or damage of goods. The insured must get an insurable interest at the time of loss or damage otherwise, he will not be able to claim compensation.
The principle of indemnity means that the insured will be compensated only to the extent of loss suffered. There is an exception to the principle of indemnity in marine insurance. Some profit margin is also allowed to be included in the value of the goods. But, he will not be allowed to earn profit from marine insurance. The assumption is that the insured will earn the profit when goods reach their destination. At the time of taking up the policy, the money value of subject matter is decided. Sometimes the value is calculated at the time of loss also.
4. Cause Proxima
This word is derived from Latin word which means the nearest or proximate cause. This principle helps to decide the actual cause of loss when a number of causes have contributed to the loss. To fix the responsibility of the insurer the immediate cause of loss should be determined. The remote cause of a loss is not important in determining the liability. (Malhotra, publish your article)
Marine insight. n.d. Electronic. 15 06 2016.http://www.marineinsight.com/know-more/what-is-marine-insurance/
Agrawal, RC. your article library.com. Since 1998. Electronic. 15 06 2016http://www.yourarticlelibrary.com/insurance/marine-insurance-nature-subject-matter-and-principles/42122/
Malhotra, Vivek. publish your article.n d. Electronichttp://www.publishyourarticles.net/knowledge-hub/business-studies/what-are-the-subject-matter-of-marine-insurance/833/
Malhotra, Vivek. publish your article. n.d. Electronic. 15 06 2016http://www.publishyourarticles.net/knowledge-hub/business-studies/meaning-a-principles-of-marine-insurance/830/
- Marine insurance is a safe haven for shipping corporations and transporters because it helps to reduce the aspect of financial loss due to loss of important cargo.
- Marine insurance is concerned with overseas trade.
- Ocean marine insurance covers the perils of the sea whereas inland marine insurance is related to the inland risks on the land.
- The floating policy is just similar to open cargo policy but differs from it only in respect of the method of paying the premium.
- The shipping company has an interest in freight. The freight may be paid in advance or on the arrival of goods.
- The marine contract is based on utmost good faith on the part of both the parties.
- Insurable interest means that the insured should have interest in the subject when it is to be insured.
- The immediate cause of loss should be determined to fix the responsibility of the insurer.
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