Introduction
The sources of marine insurance are one of the most intriguing and sophisticated subjects ever raised throughout the history of business enterprises. One of the factors sparking this confusion emerges from the pioneer documentary sources that indicate ambiguity, leading to various interpretations. The legal writers who carried out an extensive research on the controversial issues surrounding marine insurance insists concentrating their efforts on specific documents dated between 13th and 14th centuries. However, even early document give an inaccurate account of information, incomplete and filled with glaring errors. In other words, assessing marine insurance has not yielded any fruits. Rather than look into the tainted history of marine insurance, this essay will carry out an extensive research on risk selection process an underwriter undergoes before accepting an application for ocean cargo insurance and how the insurance policy manages shipments from losses.
Role of Marine insurance
In the international transport industry, all stakeholders in the shipping of goods from one place to the next, acknowledges the vital role insurance plays in safeguarding the cargo of its clients (Rose, 2013). But still, many people miss the crucial role of marine insurance plays in ensuring the safety of their cargo.
Accidents can occur at any time within the port area. For example, Karachi port gave an outline of risks linked with transporting goods overseas (Rose, 2013). Two container ships crashed head on. The first ship tried to docking against a stationary ship and sent its shipment flowing into water. The accident led to loss of millions of goods within seconds.
It is vital to note that there two types of marine insurance, hull and cargo. In this case, the essay discusses cargo. Hence, this type of marine insurance covers ship cargo carried on a ship and from one port to another (Hodges, 2012). The ship itself falls under the hull insurance. After clarifying the difference between the two, the high competition in marine transport, ship owners face stiff competition among themselves and between other forms of transport systems. Hence, insurance plays a great role in ensuring that paying insurance premium regulates prices in the market.
Risk selection process
The risk selection procedures of an insurance firm that determines whether one is eligible for an marine insurance or not hinges on terms and conditions of the insurance company as well as premium that goes into insuring the ship. The party that controls the entire process is the underwriter (Hodges, 2012). After considering all the factors pertaining or not pertaining the applicant, the underwriter has to know the type of ship in need of insurance, For instance, the weight of the ship, type, and total value of the ship. Secondly, the legality of the ship. In some unique instances, it is illegal to insure some types of ships. The ship must have a registered government name before signing for insurance.
The research methods used to look into the eligibility of a ship before an insurance firm fully accepts the responsibility of insuring the vessel is called qualitative researches. With a qualitative research, one can get details on the all the relevant data about the applicant’s cargo vessel (Hodges, 2012). For example, survey, interviewing the owners in order to reveal more information on the underlying factors. After getting the results from the qualitative research, the underwriter has to match them with the marine insurance firm’s policies and terms before deciding whether the cargo vessel passed the test.
No insurance company wants to reject applicants unnecessarily; hence, a thorough research has to go into unveiling data for the sake of making a good judgement at the end of the day (Hodges, 2012). The state also regulates the insurer and heavily controls the underwriting process from start to finish.
A ship is a capital intensive object; a ship owner’s objective is to safeguard his investment from loss and cater protect it by all means necessary. Thus, the insurance firm acts as a backup plan in case of an accident; it covers accidents that bond to happen at any time. Ships can capsize and cause tremendous loss. Therefore, insuring a vessel gives the owner a chance to salvage his property in time, phenomena referred to as protection and indemnity (Kingston, 2011). Both protection and indemnity safeguard a ship from effects of wear and tear, pollution, and even oil spillage. For instance, in case of an oil spillage, the insurance company will cover it if the community holds the particular vessel responsible crisis. The insurance has a duty of investigating an incident before releasing funds into the account of the owner. Clarity is vital for retaining a good work ethic filled with honesty. Simply put, the insurance company covers any losses incurred directly or indirectly in the course of the agreed terms and conditions.
Every cargo carried in a ship has a specific value. From a tiny item to a huge product, all have a monetary value attached to it (Kingston, 2011). The owners of the cargo can accurately attach a price tag to each item no matter the size. In case of an accident, the ship owner would want extra money to compensate the owners of the cargos. Thus, marine insurance steps in to fill the space and time an accident would create.
More so, Marine insurance is an essential aspect of international commerce or trade and under a set of rules and regulations in each and every phase of its operation. Furthermore, The Marine Insurance Act enacted in 1963 aimed at overseeing and regulating shipment the manner in which marine insurance companies go about their businesses (Kingston, 2011). Everyone knows the economic consequences of neglecting a valuable asset without insuring it in equal measure with its value. However, the legal framework put in place to facilitate and enable operators to successfully implement methods that would prevent overexploitation while keeping the trading centers attractive to all people who wish to join the industry.
Basics of Marine Insurance
Marine insurance is a business and involves getting into agreement or contracts with cargo vessels via legal means (Rose, 2013). In addition, marine insurance can extend to warehouses used in the storage of goods after a ship reaches the port. Hence, insurance is a business of possessing other’s risks and in case of an emergency, covering or meeting the losses in terms of finances.
The underwriter ensures quantifies a risk in terms of payment or commonly known as premium. More so, the premium is a form of surety against the eminent risks likely to face the cargos in the seas (Rose, 2013). The amount of the premium reflects on the magnitude of the risk. Hence, the greater the risk, the higher the premium and the greater the loss that might result of anything happens to the vessel.
How insurances control losses
The only unique item about marines is the underlying capability to control losses. Marine insurances include risk management and tasks patterned to minimize the chances of losses in case of an accident (Rose, 2013). Managing losses implies defining the sources of the potential risks, and formulating a possibility of actions needed to counter the risks by both the client and the insurance firm.
Insurance damage control assists minimize the obvious risks, both sides of benefit through insurance. Marine insurance takes an extra step in confirming that the client does not claim anything in case of an accident. To achieve this, they have to list all the specific things they insure (Rose, 2013). Hence, an insurance company only compensates specific items, anything out of that is invalid. Insurers give incentives to marine policyholders. For example, the marine insurance organizations tend to try to minimize the premium of a ship owner takes an educational course in the navigating a ship. This implies that the ship owner will reduce his risks and the insurance firm will have fewer aspects to manage in the event of an accident. Marine insurers may need a person to carry out a certain activities to cover up susceptible risks. They may require a sprinkler system in case of fire or placing fire extinguishers in case of a fire emergency.
In summary Marine insurance achieves insuring cargoes by controlling potential risks. Marine insurance is an essential component of trade and gives investors a backup plan when an accident comes knocking at the door of an investor. Placing in context of the world, the marine insurance regulates prices and lessens the burden of ship-owners.
Reference
Rose, F., 2013. Marine insurance: law and practice. CRC press.
Hodges, S., 2012. Cases and Materials on Marine Insurance Law. Routledge-Cavendish.
Kingston, C., 2011. Marine insurance in Philadelphia during the Quasi-War with France, 1795–1801. The Journal of Economic History, 71(1), pp.162-184.
Rose, F., 2013. Marine insurance: law and practice. CRC press.
