Since most of the foreign trade is served by sea transport, foreign trade insurance issues are addressed through the marine system.
Within its framework, insurance is carried out for ships, transported goods and liability insurance for ship owners.
Due to the active development of container transportation, an independent type of marine cargo insurance has appeared.
What is marine cargo insurance?
Marine cargo insurance is a type of property insurance.
It secures goods while in transit against loss or damage.
Such issues can arise from dangers associated with the navigation of the sea waterways.
The most known marine cargo insurance conditions are published by London Institute of Underwriters (Clause “A”, B”, and “C”).
What is a marine cargo insurance policy?
If you or your supplier decided to use marine cargo insurance, you have to finalize this agreement.
The marine insurance policy is issued only when the contract has been finalized and it would be legal documents of evidence of the contract.
The form of marine insurance policies has been taken from pretty old times.
The Marine Insurance policy covers the loss or damage to property caused due to:
1.Natural disasters like cyclone, earthquake, lightning, etc.
2.Man-made disasters like theft, violence, and piracy of ships.
3.Collision, overturning or derailment of land conveyance.
4.Sinking or stranding of ships.
5.Expenses such as survey fees, forwarding costs, and reconditioning costs.
What does marine cargo insurance cover exactly?
The Marine Insurance policy covers loss, partial or total destruction of cargo in the following cases:
Significant natural disasters including earthquake, tornado, storm, etc.
Malicious destruction or theft of goods by people.
Acts of war.
Collision, overturning or derailment of land transport.
Sinking or stranding of ships.
Financial costs such as survey fees, forwarding costs, and reconditioning costs.
Marine cargo insurance covers your goods for any loss or damage while in-transit on the ocean.
Where can I purchase marine cargo insurance?
You can buy an insurance policy from special insurance companies that are involved and specialized in the insurance of sea cargo.
You can find these companies in two ways:
1. search them yourself using Google;
2. Ask the carrier company that will be involved in the transportation of goods for specific recommendations.
The second option is preferable, as the company knows the nuances and specifics of your cargo.
- What is a marine cargo insurance policy?
- Who needs marine cargo insurance? Why is marine cargo insurance necessary?
- What are the main terms and definitions for marine cargo insurance topic?
- What does marine cargo insurance cover exactly?
- Where can I purchase marine cargo insurance?
- How much does marine cargo insurance cost?
- Marine insurance vs cargo insurance: what is the difference?
- What is the connection between the letter of credit and marine cargo insurance?
- What are the main exclusions in the marine cargo insurance contract?
- What are the main types of marine cargo insurance policies?
- What is the general average in the case of marine cargo insurance?
- Marine cargo insurance subrogation: what is it?
- What are the key principles of marine cargo insurance?
- What is the basis of valuation for marine cargo insurance?
- Can marine cargo insurance be used for individuals?
- How is the marine insurance premium for cargo calculated?
- How marine cargo insurance is related to customs clearance?
- What exactly Incoterms 2010 speaks of the marine cargo insurance?
- Does marine cargo insurance cover theft?
- Marine cargo and inland transit insurance: how are these two differ?
- Does the HS code matter for marine cargo insurance?
- What do different forms of marine cargo insurance documents mean (proposal form, application form, claim form)?
- What is the marine cargo insurance endorsement?
- Does the FOB Incoterms have a marine cargo insurance option?
- What is open marine cargo insurance?
- Marine cargo insurance cover note: what is it?
- What is the difference between a marine cargo insurance broker and agent?
- Can I use marine cargo insurance for domestic deals?
- Which companies can provide marine cargo insurance?
- What is ocean marine cargo insurance?
- What is the capacity of the marine cargo insurance market?
- What is the future of marine cargo insurance?
- Are there some disadvantages of marine cargo insurance?
- What is the legal status of marine cargo insurance?
- How does marine cargo insurance work for the buyer? What are the steps to get insurance compensation?
- Can I use Bansar services to get the needed marine cargo insurance?
Who needs marine cargo insurance? Why is marine cargo insurance necessary?
Both buyer and seller, as well as other secondary parties in international trading, have to be interested in marine cargo insurance.
It helps to secure your financial contributions from unforeseen issues.
What are the main terms and definitions for marine cargo insurance topic?
There are some key terms which you have to understand before applying for marine cargo insurance.
Cargo. These are goods, merchandise or commodities of every kind that may be carried on a vessel. This happens generally under a bill of lading
Bill of lading. It is a document for goods which the supplier gives to the shipper before transportation. Bill of lading is also a contract between the carrier and the shipper, which sets forth the terms and conditions under which the merchandise will be carried.
Theft. It means the disappearance of the cargo unit with clear evidence that it has been stolen.
Demurrage. This term refers to compensation per day or per hour for earnings which are lost as a result of the delay.
Actual total loss. Actual (absolute) total loss refers to the loss of insured goods due to the following reasons:
- Complete loss or destruction of goods.
- Goods have been damaged very badly.
- Irretrievable deprivement (goods are not damaged, but they can’t be transported to the owner because of theft, capture, etc).
Deviation. The deviation is a situation where a vessel proceeds from the port of departure to the destination, by an unusual or improper course. Some marine cargo policies contain a clause by which parties agree to cover the insured interest in case of deviation and connected losses.
Invoice. An invoice is a commercial document which sets forth the terms and conditions of the sale of goods. It contains the list of sold goods, their quantity, the price per unit, the party or parties to whom the goods are sold. Depending on the terms of sale, the charges for freight, insurance and other services performed can be also mentioned in the invoice.
There are a lot more terms and conditions in the insurance topic.
You can check the vast majority of them visiting this helpful page.
Also, you can check other marine cargo insurance definitions later in our guide.
How much does marine cargo insurance cost?
The best insurance option for small business owners is insurance through a carrier company.
This usually costs $.60 per $100 of the shipment’s insured value.
Examples of cargo insurance companies for small business:
- Insurance 321
The amount of cargo insurance rate usually consists of two components: a percentage of the cargo value and the cost of delivery.
The average percentage of the delivery cost in the insurance market is 60%.
Marine insurance vs cargo insurance: what is the difference?
Marine insurance is a broad definition, which includes various types of insurances.
Hull insurance. Insurance issued by shipowners. It covers costs in the case of damage to the ship (ship’s hull and all furniture).
Machinery insurance. This insurance type covers damage to the machinery components of the vessel. To receive payment for this type of insurance, an inspection by a specialist is needed.
Protection. Covering risks which are connected with ownership of the vessel.
Indemnity. Covering risks which are related to the hiring of the ship. E.g. Cargo-related claims.
Cargo insurance. This insurance type provides protection to merchant vessels’ corporations. It helps to avoid losing money in the form of freight in case the cargo is lost in an accident.
As you can see, cargo insurance is a separate type of marine insurance.
What is the connection between the letter of credit and marine cargo insurance?
A letter of credit is a promise by a bank on behalf of the buyer to pay the seller a specified sum in the agreed currency.
Marine cargo insurance is commonly required as a fact to issue a letter of credit.
Making so, the bank secures various risks, such as damage and delays.
The bank collects a fee ranging from 1 to 8% of the transaction, depending on its value and complexity.
What are the main exclusions in the marine cargo insurance contract?
Marine cargo insurance doesn’t provide any coverage in the following cases:
- Loss or damage to cargo due to intentional negligence.
- Damage to cargo due to delay.
- Damage due to improper packing.
- Damage to cargo due to the use of chemical, biochemical or electromagnetic weapons.
- Loss or damage to cargo due to radioactive exposure.
- Financial default of cargo owner.
There are less common reasons when an insurance company refuses to cover the damage.
They are negotiated in each particular case and regulated privately.
What are the main types of marine cargo insurance policies?
There are two main types of marine cargo insurance policies:
All risk policy. This type of coverage provides one of the broadest insurance with a wide range of protection against external factors. It can cover most types of physical losses and damages as a result of external influence.
Named perils policy. Unlike the all-risk policy, named perils type covers only the losses caused by the perils specifically named in the policy. It is generally more limited. This policy can include:
- Vessel collision.
- Vessel sinking.
- Bad weather.
- Theft, etc.
Also, marine cargo insurance policies can be distinguished in the open and limited policies.
Open marine cargo insurance covers the cargo from shipping point to final destination.
There is no kind of expiration date, also, such policy covers all freight, regardless of value.
Premiums are paid upon receipt of goods.
Please, always pay close attention to the details of your policy and clarify any doubts you may have with your insurance provider before signing the document.
What is the general average in the case of marine cargo insurance?
General average is a maritime concept that can be both beneficial and frustrating for you as a buyer.
Under general average, all losses caused during an unforeseen problem at sea are to be divided among owners of the surviving merchandise on the same vessel.
For example, as an owner of a survived cargo, you’re obliged to pay financial compensation to the owner whose goods have been damaged or lost.
On the other hand, if your goods would be lost, you’ll get the compensation from the owners of survived cargo.
This option might be specifically included in the insurance contract.
Marine cargo insurance subrogation: what is it?
Subrogation means substituting of one creditor for another.
In some insurance contracts, including marine cargo insurance, subrogation is applied to recover the loss from the errant party.
It is a right of the person enduring the loss to legally pursue the guilty party.
If the loss is insured, and the insurer pays the amount of loss, the party receiving the benefit must forfeit the right to pursue the guilty party.
What are the key principles of marine cargo insurance?
Here are the main key principles which apply to a marine insurance policy.
The utmost good faith principle. All types of insurance policies rely on the principle of utmost good faith. It clearly states that at the time of filling the policy document, the applicant should disclose the correct information. Also, the applicant should not hide any material information needed for policy fulfillment.
The insurable interest principle. It is necessary for the buyer to have a clear interest in the subject for which the insurance is needed. It means that the buyer should be benefited from the safe arrival of goods and should suffer losses due to damage of goods. Sometimes, the buyer doesn’t have an insurable interest at the time of buying a marine insurance policy. However, he should expect to get such interest in the future.
The indemnity principle. In this principle, the buyer would be compensated only to the extent of the loss. It means, the person should not purchase marine cargo insurance to earn profits. In any case, the buyer (the policyholder) will not get more than the actual loss.
The causa Proxima principle. At the time of loss, the buyer of marine insurance has to look at the nearest or proximate cause. It would help in deciding the actual cause of loss if there were a series of causes which have attributed to the loss. If the proximate cause is insured, the marine insurance company has to settle the claim.
The loss minimization principle. The fact of marine insurance policy doesn’t mean the parties can act carelessly. The buyer and supplier must take all the steps to minimize all possible risks. The policyholder can’t behave irresponsibly during an accident just because the property is insured under marine cargo insurance.
What is the basis of valuation for marine cargo insurance?
The basis of valuation sets out how the cargo has to be valued if the insurance case arises.
The basis of valuation is needed to calculate the premium and the value of a loss against a policy.
Can marine cargo insurance be used for individuals?
Yes, marine cargo insurance can be used both by businesses and individuals.
How is the marine insurance premium for cargo calculated?
An insurance premium is the amount of money the buyer pays for an insurance policy.
In practice, marine cargo insurance premiums are calculated on a rate of X per $100.
For example, if you have a cargo valued at $15,000 and the rate is .25 per $100, you take $15,000/$100 = 150 X .25 = $37.50 in total premium due.
However, check the policy for a minimum premium: most insurance policies can have such figures.
How marine cargo insurance is related to customs clearance?
Some buyers might require insurance from delays, which arise due to customs clearance.
However, it is illegal to insure such things as customs clearance.
Actually, it is one of the main exclusions from rules of all-risk coverage policy.
What exactly Incoterms 2010 speaks of the marine cargo insurance?
The word “Incoterms” is short for international commercial terms.
Such terms tell the parties what to do with respect to carriage of goods from the seller to buyer, export and import clearance, the division of costs and risks between the parties.
Also, some Incoterms 2010 contain clauses about marine cargo insurance:
- Cost and freight.
- Cost, insurance and freight.
- Free Alongside Ship.
Please, read out full Bansar guide if you want to learn more about the Incoterms 2010.
Does marine cargo insurance cover theft?
Yes, marine cargo insurance covers the loss, damage, or theft of commodities while in transit.
Marine cargo and inland transit insurance: how are these two differ?
People often confuse inland transit insurance and marine cargo insurance.
The truth is that they are really quite similar.
However, there are a lot of differences between the two insurances (three to be exact).
By definition. The inland transit insurance covers the insured goods when being transported by land. And the marine cargo insurance, as you may assume, is an insurance that protects the buyer from the loss of goods when they are transferred by sea.
By transportation. Obviously, the methods of transportation can make a difference when deciding about these two types of insurance. Basically, the inland transit insurance doesn’t cover the transport of goods by sea or air. But, if there is a waterway connection in your country the inland insurance can actually protect you from the maritime issues.
Does the HS code matter for marine cargo insurance?
You would have seen the HS code across many documentation connected with international trade.
HS Code stands for harmonized commodity description and coding system.
This is the common standard worldwide for describing the type of commodity.
In general, the vast majority of such commodities fit the general rules of insurance.
However, there are some products in HS classification which require special rules of insurance (such as hazardous materials, explosives, etc.)
The marine cargo insurance of such goods can cost you more than in the case of general commodities.
What do different forms of marine cargo insurance documents mean (proposal form, application form, claim form)?
A proposal form is a document completed by you as a buyer when applying for insurance.
You have to fill in information about the risk you are insuring e.g. the cost of your marine cargo.
An application form is practically the same as a proposal form: it is a document which you have to fill before applying for insurance.
A claim form is a document used for requesting payment from an insurance company when something happens with your goods.
What is the marine cargo insurance endorsement?
An insurance endorsement is an agreed addition to some kind of insurance contract.
It can change the terms or scope of the original policy: to add, delete, exclude or otherwise bring shifts to the coverage policy.
Does the FOB Incoterms have a marine cargo insurance option?
FOB (Free on Board) Incoterms do not oblige sides to pay for marine cargo insurance.
In the vast majority of the FOB practical cases, the buyer decides to pay for additional marine cargo insurance to secure his goods.
What is open marine cargo insurance?
The open cover is a marine insurance policy which covers all your shipment during the policy period.
Open cover insurance is most commonly purchased by companies that make frequent shipments.
Such broad coverage helps them to get rid of buying a new policy each time a shipment is made.
Marine cargo insurance cover note: what is it?
A cover note is a legal paper issued by an insurance company that provides proof of insurance coverage until a final insurance policy can be issued.
A cover note is different from a certificate of insurance or an insurance policy document.
A cover note features the name of the insured, the insurer, the coverage, and what is being covered by the insurance.
What is the difference between a marine cargo insurance broker and agent?
Even though agents and brokers perform practically the same functions, there is still a slight difference between these two professions.
First of all, the insurance agents represent only one insurance company, while brokers can represent multiple insurance companies.
Thus, brokers are free to offer a wider range of products to their clients.
It would be right to say that agents work for the insurance company while brokers work for their clients.
Secondly, the difference lies in the licensing process.
Both agents and brokers have to obtain needed education in order to get the license.
These licenses are different for the broker and agent.
Also, such persons are obliged to periodically confirm their knowledge and pass additional exams.
Can I use marine cargo insurance for domestic deals?
Yes, you can use the marine cargo insurance in the case of domestic trade.
Please, head back to the question “Marine cargo and inland transit insurance: how are these two differ?” if you want to learn more about the domestic use of the marine cargo insurance.
Which companies can provide marine cargo insurance?
Each insurance company has to obtain the license before starting the actual work.
The license is given in accordance with the type of commodity which the insurance company wishes to cover in the future.
Each country has different requirements for entities who want to obtain an insurance license.
What is ocean marine cargo insurance?
Ocean marine insurance is a special type of the marine cargo insurance, which protects your cargo from issues in open ocean.
Bansar offers an assortment of ocean marine policies that can cover any aspect of your marine operations.
Our flexible coverages are backed by a team of ocean marine specialists who can help you get the right insurance for your individual circumstances.
What is the capacity of the marine cargo insurance market?
As you can see from the graph below, marine cargo insurance is the biggest part of the marine insurance market.
What is the future of marine cargo insurance?
The future of marine cargo insurance is tightly connected with the maritime shipping market.
So long as we are using such type of transportation, the need in marine cargo insurance will be a thing.
Are there some disadvantages of marine cargo insurance?
It is hard to mention the disadvantages of marine cargo insurance.
The only thing which comes in mind is the fact that you have to pay premiums for the insurance policy.
However, it is an insignificant cost, if you think of the level of security which you get eventually.
What is the legal status of marine cargo insurance?
There is no single law which describes the standards of marine cargo insurance.
In practice, courts and insurance companies use international practices and their domestic laws when deciding about some kind of insurance case.
When applying for some kind of policy, you have to figure out laws of which country will be used in the case of danger to your goods.
How does marine cargo insurance work for the buyer? What are the steps to get insurance compensation?
Once you’ve bought the marine cargo insurance, you can be sure in the security of your goods.
The process of getting the insurance compensation is called the claim procedure.
If the situation when you need to make a claim under the policy arises, you can follow the next steps:
- in the case of loss or damage to the cargo, you have to immediately inform the insurance company;
- a surveyor will check the mentioned loss or damage;
- after this, the claim form is created, which contains all the proofs and witnesses needed to make the claim;
- for a missing package, the insured party has to provide a monetary claim to the insurance provider and get an acknowledgment for it;
- if the insurance company finds your case as an appropriate, it would approve the claim.
Also, the insurance company can reject the claim in some cases.
If you are not satisfied with the decision of the insurance company, you can approach the court of law with your case.
Can I use Bansar services to get the needed marine cargo insurance?
Bansar can become your trusted freight forwarding company, which means that we can provide not only transportation and customs services but also good insurance coverage for our clients.
Choosing us, you get the best options to secure your goods while in transit.
Also, Bansar insurance partners can customize a marine cargo insurance program depending on your needs to include:
- International and domestic cargo coverage.
- Warehousing and storage insurance.
- Warehouse to warehouse insurance.
- Protection for a high-value cargo.