Marine insurance is one of the oldest forms of insurance dating back to the twelfth century. Trading in olden days was mostly through the sea routes and traders faced heavy losses at sea occasionally. Loss of goods and investment were a matter of great concern among the sea-faring traders. European countries like United Kingdom, Greece and Rome felt the need for insuring the ships and cargoes against such eventualities and losses. Marine insurance market developed over the years with various forms of underwriters coming forward to underwrite vessels, cargoes and investment in machinery etc.
In England the Lloyds became a prominent insurance market congregating insuring agencies and underwriters for the marine sector. Britain being a sea-faring nation with plenty of traders transacting offshore had huge demand for marine insurance services and gradually the market developed and matured over the years. Marine insurance policies are one of the oldest policies written owing to its early origins. The first marine insurance contract dates back to the 14th century. This policy covers “maritime perils” that includes any case of eventuality in the sea like sinking, stranding, collision, fire, pirates, or washing overboard.
These policies state the terms and conditions that should be agreed upon between the underwriter and the trader. The Marine Insurance Act (1906) states “a contract of marine insurance is a contract whereby the insurer undertakes to indemnify the assured, in manner and to the extent thereby by agreed, against marine losses, that is to say, the losses incident to marine adventure.. ” Types of marine insurance and emerging trends The marine insurance market comprises of various categories of marine insurance namely cargo, hull, protection and indemnity, liability and yacht.
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The marine insurance market, however, has witnessed rapid changes in the past few years owing to increasing influence of globalization of economies and market liberalization policies adopted by countries across the world. Booming international trade and increasing movement of goods and people across geographical boundaries has defined new dimensions to the transportation of goods and machineries. Sea routes are used to transport heavy machinery items and fuel through large container ships. The ships are getting bigger in size that raises the nature and size of risk to owners.
The number of ships has also increased in line with increased global trade. These changes have ushered in new trends in marine insurance market practices. The subsequent section analyses the various forms of insurance and their changing trend in the past few years. cargo insurance The marine insurance policy is designed to cover various hazards related to the cargo or shipment in transit. This forms a vital form of marine insurance market since most traders are concerned with losses in cargo that poses great risk. This insurance sector provides protection to the seller or shipper or to the buyer of the cargo.
In the 1990s the International Shipping Agency amended the policy terms to provide for “transfer of ownership and responsibility at various points along the transit route, including at custom border” (Sayles).
The AON marine insurance market review 2008 observes that the cargo insurance sector accounts for the largest insurance market within the marine insurance industry. This insurance sector remains favorable owing to falling rates in premiums and underwriters are making profits in dealing with cargo market segment.
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Hull Insurance When the insurance covers the ship it is called hull insurance. Under this form of insurance the ship owner is provided protection in case of any unfortunate event at sea. The hull policy is generally written “for each voyage of a ship or for a specified time period” (Sayles).
The recent market trends show an increasing risk factor in this insurance market segment owing to the increasing size of vessels and large container ships that require experienced crew to handle them.
“Hull and machinery accounts on their own are unlikely to be profitable due to the combination of falling rates and emerging losses. The main reason the market remains soft, despite poor profitability, is competition driven by additional capacity” (AON Marine Insurance Market Review, 2008).
Protection and Indemnity Insurance Protection and Indemnity (P&I) insurance segment refers to the insurance against physical or property damage occurring due to accidents or any kind of unexpected vessel-related expenditures.
This insurance segment has been favored by most vessel owners owing to the extensive area of risk covered. However, of late, market rates have increased and owners are finding themselves paying more to cover these risks. “Significantly, it is not the number of claims that is causing the increase in costs, but their average size. The main drivers behind the rise in the value of large claims are new legislation and tougher regulation, particularly on environment liability” (AON).
This type of insurance refers to the insurance coverage for ship repairers, boat dealers, and cabin crew. This segment has reported high profits in the past and the current market trends continue to be favorable. The market is becoming more global with insurers reaching out to new developing countries cashing in on the expanded opportunities and new challenges triggered by globalization of trade and commerce. Yacht Insurance The yacht insurance segment covers insurance towards private yachts, motorboats and sailboats.
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This form of insurance provides cover to the property and liability in case any collision or injuries. The yacht insurance segment has witnessed tremendous boom in recent market conditions owing to rising demand for private boats. Marine Insurance – the way ahead In light of the changes taking place in the global economic conditions and emerging market trends in the marine insurance market sector, various market experts suggest that marine insurance companies should concentrate more on cargo insurance sector to increase their profitability in business.
Expanding to offshore business locations like China and India are also viable strategies owing to increasing prominence of these countries in global trade and commerce. The AON Marine Insurance Market Review 2008 report claims “At the moment, the outlook for the shipping industry appears to be broadly positive thanks to the flourishing world trade and the continuing rise in demand from China, India, and other developing nations. ” A more global approach to the marine insurance market has caused many companies in UK to expand to new markets and cultures.
The insurers are re-designing their business strategies to embrace the Internet as a medium to extend their market reach. J. Gosling (Insurance Brokers) Pvt. Ltd moved online through their website http://www. insure-a-boat. co. uk to cater to expanding markets and facilitate customers to avail their services online. Their website provides the customers with all necessary details in the context of marine insurance. In view of the expanding yacht insurance market segment the website caters to the insurance covering needs of clients for yacht, motorboats and sailboats.
The website details all aspects of the insurance cover process, requisites, and claims in addition to query management system that responds to specific needs and requirements. This approach has helped the company to widen their scope of application and cater to specific clientele that provides them with an area of specialization which is well appreciated in today’s market. Online trading and information accessibility makes it convenient for the clients to pursue their business needs from any corner of the globe.
It also helps to make documents readily accessible anywhere in the world and this is much required feature of the marine insurance market. As the AON marine insurance market review 2008 claims “Making insurance documents readily accessible anywhere in the world is vital in this evolving global market, so that we believe the time is now right for the marine market to embrace electronic trading. ” Additionally, the marine underwriters need to work more closely with ship owners towards risk minimization. Various steps can be taken to cut down risks through more transparency of information and facts.
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The CEFOR press release in April 2008 states “As part of the wider maritime community, marine insurers support and play an important role in the drive towards quality tonnage. Transparency greatly affects the industry’s ability to participate in this battle. ”
1. AON marine insurance market review 2008. Accessed on 19th November, 2008 from http://www. aon. com/uk/en/industry_specialisations/marine/images/market-review. pdf 2. Sayles, David. Ocean Marine Insurance. Accessed on 19th November, 2008 from http://www. dsayles. com/marine. htm 3.
History of Marine Insurance. Accessed on 19th November 2008 from http://chestofbooks. com/society/law/Popular-Law-9/Section-4-History-Of-Insurance-Marine-Insurance. html 4. Insure-a-boat. co. uk. Accessed on 19th November 2008 from http://www. insure-a-boat. co. uk/claims. php 5. Malaysian Insurance Institute. 95 principles of Marine Insurance. British Library online database. 6. CEFOR. 2008. Soaring claims costs set to transform marine insurance market. Accessed on 19th November 2008 from http://www. cefor. no/news/CEFOR%20&%20Annual%20Report/CEFOR%202008%20Press%20Release. pdf