Marine Insurance — What & Why ?

12 min readAug 22, 2023

1. Introduction:

Marine insurance functions as an indemnity agreement, assuring protection for goods during transit from their origin to destination. It covers losses or damages concerning ships, cargo, terminals, and marine property, as well as personal injury or property damage arising from maritime accidents. Across history, marine insurance has been vital in managing risks tied to maritime trade and transport.

The complex dynamics of global maritime trade, laden with challenges, have necessitated tailored insurance policies to shield stakeholders. This study explores distinct marine insurance policies — hull, cargo, freight, and liability insurance — each designed to address specific perils inherent to maritime activities.

The maritime realm, enabling worldwide movement of goods and resources, operates amid constant risks like adverse weather, geopolitical tensions, and technological issues. From piracy to natural disasters, the sector confronts an array of dangers leading to substantial financial losses. Marine insurance acts as a safety net, securing ship owners, cargo proprietors, and stakeholders from potential losses due to these perils, facilitating business continuity.

This paper thoroughly examines diverse marine insurance policies and assesses their relevance within contemporary maritime commerce. It delves into their implications for safeguarding against uncertainties in the maritime domain.

2. History of Maritime Insurance:

The origins of maritime insurance date back to ancient times. The earliest known instances of maritime insurance contracts were documented in Babylonia during the 2nd millennium BC. These contracts were devised to offer protection for cargo against potential loss or harm while in transit.

Throughout the Middle Ages, maritime insurance gained traction across Europe. Genoa, Italy, saw the issuance of the first recorded marine insurance policy in the 14th century. This policy was aimed at safeguarding a shipment of silk from potential loss or damage during transportation.

As time progressed, the 17th century witnessed the evolution of maritime insurance into a more sophisticated framework. This era witnessed the emergence of novel insurance policies, including hull and freight insurance. These policies extended broader coverage, catering to the needs of businesses deeply entrenched in maritime activities.

3. Types of Maritime Insurance

Marine insurance is a type of insurance that provides coverage for risks and damages related to maritime activities and transportation of goods and passengers by sea. There are several types of marine insurance policies designed to cover different aspects of maritime risks. Here are some of the main types:

Hull Insurance: This type of insurance covers the physical damage or loss to the ship or vessel itself. It includes coverage for damages caused by accidents, collisions, grounding, and other perils. Hull insurance can be further divided into:

Hull and Machinery (H&M): This covers the ship’s hull, machinery, and equipment against physical damage or loss.
Total Loss Only (TLO): This covers the complete loss of the insured vessel, usually due to sinking, wrecking, or irreparable damage.

Cargo Insurance: Cargo insurance provides coverage for goods and merchandise being transported by sea. It protects against risks such as damage, theft, loss, or destruction of cargo during transit. Cargo insurance can be tailored to specific needs, covering various types of cargo like perishable goods, hazardous materials, and valuable commodities.
Freight Insurance: This type of insurance covers the loss of expected freight revenue in case the cargo cannot be delivered due to an insured peril. It is typically purchased by carriers or shippers to protect against potential revenue loss.

4. Liability Insurance:

Protection and Indemnity (P&I) Insurance: P&I insurance covers liabilities that ship owners, operators, and crew might face in their maritime operations. It includes coverage for bodily injury, property damage, pollution, collision, and other liabilities arising from ship operations.
Charterer’s Liability Insurance: Charterers are parties who hire a ship for transportation. This insurance covers their liabilities for damage to the ship, third-party liabilities, and breach of charter party agreements.

5. Marine Liability Insurance:

Marine General Liability: This covers a wide range of liabilities that can arise from marine operations, including ship repair, shipbuilding, wharf operations, and other maritime activities.
Maritime Employers’ Liability (MEL): This type of insurance covers the liability of ship owners for injuries and illnesses suffered by crew members during the course of their employment.

6. War Risk Insurance: War risk insurance provides coverage for damages and losses caused by acts of war, terrorism, piracy, and other hostile actions that might affect maritime operations. It’s particularly relevant in regions with higher geopolitical risks.

7. Kidnap and Ransom (K&R) Insurance: While not exclusive to maritime activities, K&R insurance can be relevant in the maritime industry due to the risk of piracy and hijacking. It covers the ransom payments and related expenses in case crew members are kidnapped.

8. Demurrage Insurance: Demurrage refers to the charges incurred when a ship exceeds the agreed time for loading or unloading. This insurance covers such charges in case they are incurred due to unforeseen events.

These are just a few examples of the various types of marine insurance available. The complexity and diversity of risks in maritime activities have led to the development of specialized policies to address different aspects of the industry.

4. Importance of Marine Insurance:

Marine insurance is incredibly important in the world of sea trade and transportation, and it matters to many people involved in this industry. Here’s why:

1. Reducing Risks: Sea journeys can be risky due to accidents, bad weather, and other problems. Marine insurance helps lower these risks by providing money to cover losses.

2. Keeping Business Going: If something goes wrong, like a ship sinking or cargo getting damaged, it can disrupt business. Marine insurance helps keep things running by covering financial losses.

3. Financial Safety: Big problems at sea can lead to big money losses. Marine insurance acts like a safety net, helping businesses bounce back financially after losses.

4. Boosting Trade: Global trade relies a lot on ships to move goods. Marine insurance gives confidence to traders, shippers, and buyers that their cargo is protected, which encourages more trade.

5. Confidence from Lenders and Investors: People who lend money or invest in sea projects often want insurance as a safety measure. It shows them that the project is well-prepared for risks.

6. Following Rules: Some countries make it a must to have marine insurance for ships operating in their waters. It’s important to follow these rules to avoid legal trouble and to keep contracts in check.

7. Caring for People: Marine insurance doesn’t just cover things; it also takes care of crew members and passengers. This promotes safety onboard and ensures the well-being of those involved.

8. Staying Innovative: New risks keep popping up in the sea world, like cyber threats. Marine insurance pushes the industry to come up with new solutions to these challenges.

9. Protecting the Environment: Marine insurance helps protect the environment by covering costs from accidents or damage to ports and coasts. This encourages responsible practices.

10. Economic Steadiness: The global economy depends on a healthy maritime industry. Marine insurance helps maintain economic stability by tackling unexpected losses, boosting investor confidence, and keeping growth steady.

5. Principles of Marine Insurance:

The principles of marine insurance are like the foundation of the rules that guide marine insurance agreements. These principles set the expectations and responsibilities for everyone involved. Here are the main principles:

1. Utmost Good Faith: Everyone must be truthful and share all important information about the risk. This helps the insurer understand the risk and decide on terms and prices.

2. Insurable Interest: The person getting insurance must have a real financial or legal interest in what’s being insured. This prevents people from taking out insurance just to make a profit.

3. Indemnity: Insurance is meant to cover real losses, not make a profit. It helps people get back to the same financial position they were in before the loss.

4. Proximate Cause: Insurance only covers losses directly caused by insured events, not far-off causes.

5. Subrogation: If the insurer pays for a loss, they can take legal action against the responsible party to recover the money.

6. Contribution: When there are multiple insurance policies for the same risk, the insurers share the costs fairly.

7. Mitigation of Loss: People with insurance must try to minimize the extent of the loss once something goes wrong.

8. Loss of Time: Insurance can cover not only damage but also the time lost because of a covered event. For example, if a ship can’t sail due to a problem, the insurance can cover the time lost.

9. Warranties: These are special promises in the insurance contract. If someone breaks a warranty, even if it’s not related to the loss, the policy can become void.

10. Reasonable Diligence: People need to take reasonable care of the insured property. Neglecting it could affect the insurance coverage.

6. Types of Insurance policies:

Marine insurance policies encompass a variety of coverage options tailored to different aspects of maritime risks. These policies address the diverse needs of ship owners, cargo owners, and other stakeholders engaged in maritime activities. Here are some of the main types of marine insurance policies:

Voyage Policy:

· Think of this as insurance for a single trip for things like cargo on a ship.

· It covers the risk from the starting port to the ending port.

· The coverage ends when the ship reaches the destination port.

· This type is commonly used for protecting cargo during one specific journey.

Time Policy:

· Imagine this as insurance that lasts for a certain period, like a year.

· It covers many kinds of risks during that time.

· The ship is protected for that period no matter how many trips it makes.

· It’s like long-term insurance for the ship’s safety.

Mixed Policy:

· This policy mixes voyage and time insurance.

· It could cover a ship during a specific journey for a certain time, like from one port to another for a year.

· Ships following a certain route might use this type of insurance.

Valued Policy:

· This policy decides the value of the insurance when it’s made.

· The value is written on the policy itself.

· When something bad happens, the agreed amount is paid without any arguments.

· It’s often used for ships or goods, and includes costs, insurance charges, profits, and more.

Unvalued Policy:

· In this policy, the value isn’t set at the start.

· When there’s a loss, the value is figured out then.

· The value includes things like goods’ worth, insurance charges, and a bit of profit.

Floating Policy:

· Instead of getting insurance every time you send goods, you buy one big policy at once.

· When you ship things, you just declare the details and the policy amount is reduced accordingly.

· This policy is also called an open policy.

Block Policy:

· This policy covers both land and sea risks.

· If goods are moved by truck or rail before being shipped, it covers the whole journey.

· It’s like a combo policy for different kinds of risks.

Wager Policy:

· This policy is like a bet with the insurer.

· The person getting insurance doesn’t really have an interest in what’s being insured.

· It’s not legally enforced, but insurers still consider it.

Composite Policy:

· Multiple insurers work together on one policy.

· Each insurer’s responsibility is clear and separate.

Fleet Policy:

· You can get insurance for one ship or all the ships in a fleet.

· When a company buys one policy for all its ships, it’s called a fleet policy.

Port Policy:

· This policy covers risks when a ship is in a port, anchored and waiting.

7. Types of Marine coverage clauses:

In marine insurance, the Institute Cargo Clauses (ICC) outline different levels of coverage for cargo. The three main clauses, often referred to as Clause A, Clause B, and Clause C, represent varying degrees of coverage based on the risks insured against. These clauses provide standardized terms for cargo insurance policies. Let’s break down what each clause covers:

Clause A (All Risks):

Coverage: This is the most comprehensive level of coverage. It includes protection against a wide range of risks, including accidental damage, theft, and loss, unless specifically excluded.
Exclusions: Exclusions are limited and are typically specified in the policy. These are the risks or circumstances that are not covered.
Examples: Damage due to rough handling, accidents during loading/unloading, water damage, fire, theft, and other unexpected perils.
Benefits: Provides a higher level of protection, giving peace of mind to cargo owners by covering a broad spectrum of risks.

Clause B (Broad Form):

Coverage: This offers a middle-ground level of coverage between Clause A and Clause C. It covers specified risks, which are typically more limited than those covered under Clause A.
Exclusions: Similar to Clause A, exclusions are stated in the policy, and coverage is provided only for the listed risks.
Examples: Damage caused by fire, collision, grounding, sinking, stranding, and specific named perils.
Benefits: While not as extensive as Clause A, Clause B offers a higher level of protection compared to Clause C, with coverage for a predefined list of perils.

Clause C (Limited Form):

Coverage: This is the most basic level of coverage. It provides protection against a very specific list of perils, leaving out many common risks.
Exclusions: Since the coverage is limited, exclusions are relatively few and might include risks such as intentional damage or loss.
Examples: Damage caused by fire, explosion, vessel sinking, stranding, and specific named perils.
Benefits: Clause C offers coverage for a smaller set of perils and is often chosen when the cargo is less valuable or when the cargo owner is willing to accept a higher degree of risk.

When selecting the appropriate clause for cargo insurance, cargo owners and insurers need to carefully consider the value of the cargo, the nature of the goods, the potential risks, and the desired level of protection. The choice of clause significantly impacts the scope of coverage and the extent to which the cargo is safeguarded during transportation.

8. No Coverage under Marine Insurance:

It’s important to check the policy terms to understand what’s excluded and what’s covered.

Marine insurance policies have certain things they don’t cover, called exclusions. Here are some common examples of what’s usually not covered:

Damage from the natural qualities of goods, like decay or rust, might not be covered.
Insurance covers direct damage, not money lost because of delays.
If a ship isn’t safe or equipped properly and it leads to a loss, insurance might not cover it.
Damage from nuclear events or radioactive materials usually isn’t covered due to the big risks.
Some policies might not cover losses from war, terrorism, or related events.
Small leaks or loss of weight during travel, which is kind of expected, might not be covered.
If goods get damaged because they were packed or prepared poorly, it might not be covered.
If someone deliberately causes damage, insurance might not help.
If something breaks because it was made badly, it’s often not covered.
Damage from strikes or labor disputes might not be covered.
Losses from government actions like taking or holding goods might not be covered.
If a loss happens outside the insurance coverage period, it won’t be covered.
If there were issues before getting insurance, they might not be covered if they lead to a loss.

9. Conclusion

Marine insurance stands as an essential foundation within maritime trade and transportation. Evolving from ancient Babylonia to the present day, its principles and policies have adapted to the challenges of the sea. It serves as a shield for ship owners, cargo owners, and stakeholders, aligning with principles of transparency and trust.

These principles guide comprehensive policies tailored to maritime perils, offering a safety net against natural disasters, piracy, and accidents. Marine insurance not only ensures business continuity but also fuels economic stability and global trade. As the maritime industry charts a complex future, marine insurance remains a steadfast guardian, fortifying this crucial sector against the unpredictable forces of the sea. Its enduring importance is seen in its role in fostering responsible practices, securing economic growth, and upholding the safety of goods and people on their oceanic journeys.