10 Things You Need to Know About Marine Insurance

I came across the true concept of marine insurance when I was a cadet on my first ship. We unexpectedly went to an emergency drydock due to rudder damage. This would have been a very painful financial blow to the shipowners considering that the same ship finished her scheduled drydock 3 months ago.

But since the vessel was insured, the marine insurance company helped out by paying for the repairs. It happened in 2009 when the world was bearing the brunt of the global financial meltdown.

This experience really made me grasp the concept of marine insurance and how useful it is in the maritime industry.

10 facts about marine insurance

No matter the size of a shipping company, they all have some form of insurance to protect their ships. My 10 years of sailing on tanker vessels made me realize its importance.

So, what actually is marine insurance and how does it work? How much does it cover, and who are the big names in this industry? Let’s learn about all of them here.

1. What is marine insurance?

Marine insurance is a type of insurance that covers ships, cargo, and other marine-related risks. It provides financial protection against losses or damages caused by the perils of the sea. Such perils include storms, collisions, piracy, fire, hull damage, and other risks.

The sea is a very dangerous place and no matter the type of ships, they are prone to breakdowns, accidents, and unforeseen incidents. If our ship, for example, had no insurance coverage, who knows if our company would have survived considering that we spent 30 days in the shipyard.

Because of the safety net it provides, marine insurance offers peace of mind to shipowners, cargo owners, and other parties involved.

2. How does marine insurance work?

Now that we know that marine insurance saves the day, how does it actually work?

Well, like any other form of insurance, it can be understood through a simple principle: pooling resources to spread the risk.

Here’s how it typically works: Shipowners or cargo owners purchase marine insurance policies from insurance companies.  These policies outline the specific coverage and terms of the insurance agreement. The insured parties will then pay certain amounts called premiums to the insurer.

If a covered loss occurs, the insurer pays the insured a sum of money to compensate for the loss or damage. If there is no incident or accidents during the term, the insurer gets to keep your premium. But this is still a win-win. 

Would you rather have your insured vessels experience accidents, disrupt your business, and tarnish your reputation or be happy with the insurer keeping your money because everything went safe?

3. Who can buy marine insurance? 

Marine insurance is available to anyone with an insurable interest in a marine-related risk. This includes individuals and entities involved in importing, exporting, or engaging in maritime activities.

Here are some parties that may utilize marine insurance services:

• Shipowners: They are the primary buyers of marine insurance. Shipowners can buy marine insurance to protect their ships and cargo from financial losses that can occur during transport.
• Cargo owners: Cargo owners too like to protect their goods when shipped to sea so they will buy them as well
• Charterers: They are parties who charter or lease a ship from the shipowner for a specific period. Charterers may opt for marine insurance to protect their interests during the charter period.
• Freight forwarders: Because business is now a global network, freight forwarders or companies that handle the logistics and transportation of cargo may obtain marine insurance to protect their liability and the goods they handle.
• Banks: Banks that lend money to shipowners or cargo owners can buy marine insurance to protect their loans from financial losses that can occur during transportation.
• Governments: If governments want to protect their interests in shipping, such as ports or shipping lanes, they may also avail of this insurance.
• Shipbuilders and repairers: Entities engaged in the construction, repair, or maintenance of ships may acquire marine insurance to cover the risks associated with their operations.
• Ports and terminals: Like the government, authorities or private entities responsible for operating ports and terminals may seek marine insurance.
• Offshore operators: Companies involved in offshore exploration, drilling, or production activities may purchase marine insurance to cover their offshore assets, personnel, and liabilities.

Other entities that can buy marine insurance include ship operators, shipbrokers, salvage and towage companies, marine surveyors, marine contractors, cruise lines, and inland waterways operators.

4. Types of marine insurance

There are three main types of marine insurance. Due to the nature of accidents and incidents, each of them has sub-types that cover more specific types of risks. You may have heard some of them onboard especially if your ship got involved in an accident.

Here are the three main types of marine insurance and their subtypes:

a. Hull and Machinery Insurance: Covers physical damage to the ship and its machinery caused by perils of the sea. It typically includes coverage for total loss, partial loss, and salvage costs.

Here are its subtypes:

• Total Loss Only (TLO) Insurance
• Named Perils Insurance
• All Risks Insurance
• Increased Value Insurance
• Collision Liability Insurance
• Sue and Labor Insurance

b. Cargo Insurance: Typically includes coverage for perils of the sea, theft, and other risks that may cause damage to the cargo.

• Specific Cargo Coverage
• All-Risk Coverage
• Open Cargo Coverage
• Contingency Insurance
• Warehouse-to-Warehouse Coverage
• Voyage Coverage
• Time Coverage
• Annual Policies
• Comprehensive Coverage
• Project Cargo Insurance
• Delay in Start-Up (DSU) Insurance
• Stock Throughput Insurance

c. Protection and Indemnity (P&I) Insurance: Probably the most well-known. This type of marine insurance covers liability for third-party claims arising from marine-related accidents, such as pollution, collisions, and injuries to crew members.

Here are the sub-types that fall under P&I insurance:

• Charterers Liability Insurance
• Freight Demurrage and Defense (FD&D) Insurance
• Crew Personal Accident Insurance
• Pollution Liability Insurance
• War Risk Insurance
• Excess Liability Insurance

As trade becomes more complicated, there may be more types not listed here. Also, elaborating on the types of marine insurance deserves a separate post in the future.

5. What are the risks covered? 

The coverage for each insurance type depends on the policy that you purchased. It’s very important to know them before investing in one.

Here is their coverage with regard to each type:

a. Hull and Machinery Insurance:

• Damage caused by accidents, collisions, grounding, or striking submerged objects.
• Damage resulting from fires, explosions, or machinery breakdowns.
• Loss or damage due to natural perils such as storms, hurricanes, earthquakes, or lightning strikes.
• Damage caused by acts of piracy, theft, or vandalism.
• Loss or damage resulting from the sinking or capsizing of the vessel.
• Damage caused by the entry of water into the vessel.
• Liability coverage for third-party claims arising from collisions or other accidents.
• Damage to the vessel’s machinery, equipment, or navigation systems.
• Loss or damage due to the vessel being stranded or aground.
• Damage caused by ice, freezing, or extreme weather conditions.
• Expenses related to salvage operations to recover a vessel in distress or to prevent further damage.
• Legal costs and expenses associated with defending against liability claims or pursuing recovery from third parties.

b. Cargo Insurance:

• Damage to cargo caused by theft, fire, sinking, collision, overturning, or other accidents.
• Theft or pilferage of cargo.
• Damage due to improper handling, inadequate packaging, or improper stowage.
• Non-delivery or late delivery of cargo.
• Damage or loss caused by natural disasters.
• Contamination or deterioration of cargo.
• Damage resulting from temperature variations, moisture, or humidity.
• General average contributions
• Damage caused by inherent vice or pre-existing defects in the cargo.
• Expenses incurred for salvage, preservation, or reconditioning of damaged cargo.
• Expenses resulting from a deviation or rerouting of the vessel.
• Legal liabilities for third-party property damage or bodily injury caused by the insured cargo.

c. Protection and Indemnity Insurance:

• Cargo loss or damage claims
• Unrecoverable general average contributions
• Liabilities for personal injury and death claims, including passenger and crew claims and voyage cancellations
• Medical treatment and repatriation of crew members
• Crew unemployment indemnity after a casualty
• Stowaways
• Collisions
• Damage to fixed and floating objects
• Liabilities under approved towage contracts
• Wreck removal
• Expenses of marine inquiries

Note that this list is not exhaustive and there are more types of coverage as trade and the risks evolve.

6. What risks are not covered? 

Not all losses from maritime disasters qualify for claims. Specific exclusions and terms of each marine insurance policy may vary depending on the insurer and the needs of the insured.

Basically, losses attributed to the incidents listed below are not covered.

Losses caused by:

• Unseaworthiness
• War, strikes, riots, and civil commotions (unless specifically covered by the policy)
• Acts of terrorism
• 1/4th of collision damage – most policies pay up to 75% of the collision damage. Ship operator pays the remaining 25%.
• Delay, loss of market, or loss of use
• Inherent vice or nature of the goods
• Insufficient or defective packaging
• Fault or negligence of the insured or its agents
• Intentional misconduct or criminal acts
• Unreported or misrepresented information
• Financial default or insolvency
• Wear and tear, gradual deterioration, or rust
• Nuclear hazards
• Cyber risks (unless specifically covered by the policy)

7. How much does marine insurance cost?

There is really no hard and fixed line that anyone can draw regarding the cost of insurance. It depends on several factors, such as the type of coverage, the value of the insured property, the level of risk, and many others.

Basically, the higher the value of the vessel or cargo and the greater the risk of loss, the higher the premium will be. Hence, it is determined on a case-by-case basis, as each situation is unique.

But to give you an example, if you’re a boater and you want to insure your boat, it would cost between $200 – $500 per year.

Marine cargo insurance, on the other hand, may cost 0.5% of the total value of the cargo. Again, there are still many considerations written in fine print, and it’s best to discuss them with your insurance brokers before purchasing.

And yes, ships engaged in a voyage to the Black Sea since the start of the war are now paying bigger premiums. Considering that some vessels were already damaged or destroyed, insurance companies are charging more to cover the increased risk of loss.

8. How to file a claim

There are specific processes to follow when filing an insurance claim. You can also find them in the policy including the steps and persons to contact in case of a claim.

Generally, here are the steps for filing a marine insurance claim.

1. Notify your insurance company by calling them as soon as you become aware of a loss or damage.
2. Provide necessary information such as description, photographs, videos, bill of lading, and other important data.
3. Cooperate with the investigation of their surveyors in determining the cause of the loss.
4. Negotiate the amount of your claim if you are not satisfied with the offer of the insurer and give them evidence to support your claim.
5. Sign the claim form once you are satisfied with the amount of your claim so that the insurance company will release the settlement amount.

9. Tips for selecting a marine insurance company

When selecting a marine insurance company, you may have to consider factors such as the insurer’s financial strength, reputation, experience, and customer service. 

It is also advisable to compare quotes from multiple insurers and read the policy terms and conditions carefully before making a decision.

Some other things you should consider include their:

• Specialization and expertise
• Coverage options
• Claims handling
• Underwriting expertise
• Network and global presence
• Competitive pricing
• Claims process

10. Examples of marine insurance providers

There are many marine insurance providers out there that will suit your specific needs. Here are a few of the big names and you may already be familiar with them.

I’m not recommending the companies listed here as these are for example purposes only.

• AIG Marine insurance
• Lloyd’s of London
• Zurich Insurance Group
• Tokio Marine
• HDI Global SE
• Allianz Global Corporate & Specialty Marine Insurance
• Chubb Marine Insurance

Some of these companies offer other forms of insurance outside of the marine environment. It’s best to look at them and see if they qualify your budget and the protection they offer.

May the winds be in your favor.