What Ocean Marine Insurance Is All About:
With thousands of cargo ships traveling the world daily, the risk of lost or damaged cargo is a very real scenario. Business losses could amount to millions of dollars and affect sales, business operations and probably lead to higher commodity prices.
To protect your goods while they are at sea and in transit, you need Ocean Marine Insurance.
This is a specialty insurance that covers legal liability for negligence, damages, and loss of revenue to cargo and ships, and anything else to do with marine transport. It provides you with the funds to help you recover from the losses of missing, sunk, or damaged cargo.
Read on to understand if this insurance is right for your business.
What Is Ocean Marine Insurance?
Ocean Marine Insurance, by legal definition, refers to insurance that covers three property types: cargo, hull, freight plus liability from negligence. Of these property types, there are specific conditions as to what can be claimed as damages. For instance, the hull is only insured for specific risks such as collision with another object or ship, sinking, fire, piracy, capsizing, barratry or jettisoning.
For this type of insurance, two points must be met for claims to be approved and they are:
- The ship’s owner has no prior knowledge of the accident
- The damage or destruction is not caused by normal wear and tear or incidents of war
Do I Need Ocean Marine Insurance?
This insurance will come in handy if you are in the business of:
- Marine Contracting
- Supply of marine services
- Marine transportation services
- Export/import of goods
- If you own any private seafaring vessel like a yacht
With this insurance, you will be able to offset any unexpected financial losses that may occur while you or your goods are at sea. It also helps to expedite the processing of documents for export and import orders which would otherwise require a cash deposit or bond.
Still not sure what you need?
CoverWallet's Insurance Checklist , you'll find a list of insurance types needed for your specific business or industry.
What Does Ocean Marine Insurance Cover?
At a High Level...
This insurance covers damages or losses of goods shipped by sea from the start of the shipping process up to the moment it arrives at its destination. The coverage includes General Average Principle which is part of maritime law that provides for the proportionate share in losses among all parties, liabilities due to negligence, and coverage for the vessel used to transport the goods. It may also include replacement parts needed to repair damages.
It is possible to segregate the coverage according to commercial or personal cargo; cargo type; cargo segment; and hull coverage. It is not uncommon for shipping lines to carry a combination of products from different clients.
Under hull coverage, you have two types: blue water hull and brown water hull. Blue water coverage type refers to insurance for ships that sail on large bodies of water while brown water hull coverage is for boats that sail through inland waters or close to shore. Ocean Marine Insurance usually covers blue water trips.
For exporters and importers, this insurance can be complicated. If the shipment is not paid for yet, the seller normally takes responsibility for the cargo which means the seller pays for the insurance. However, if the cargo has been paid for before shipment, it is highly likely that the buyer assumes the responsibility for the cargo’s insurance. On the other hand, there are cases when the seller assumes the responsibility for covering the cargo but keeps coverage to a bare minimum. If the buyer isn’t happy with the bare minimum, he can opt to buy additional coverage using a Increased Value Ocean Marine policy.
Getting Into the Details…
Check below for a summary of what is covered under this type of insurance.
|Type of Claim||Description||Example|
|Loss of cargo||This happens when cargo is lost while in transit.||An oil spill or a collision that causes a container van to fall overboard.|
|Loss of revenue||This insurance type will cover revenues lost from a collision or accident while in transit. It could also mean loss in terms of theft while in transit.||When a ship is involved in a collision that causes cargo to be damaged or destroyed, the value of the cargo is covered by Ocean Marine Insurance.|
|Damage to hull||This refers to physical damage to the ship’s hull.||If the ship encounters bad weather, it can be pushed to collide with an object or crash into land causing damage to its hull.|
|Total loss||When ship sinks and can only be retrieved at great cost to the ship owner, it is considered a total loss as the cost of retrieving the ship would be too high.||The SS El Faro left Florida on September 30, 2015, en route to Puerto Rico. By October 2, the ship was reported missing and by October 5, the authorities declared that it had sunk because of a hurricane.|
|Pirate attacks||This covers terrorist attacks whose main agenda is to steal cargo and hold crew hostages for money||Pirate attacks are common on certain routes but increasing in number in places like Vietnam and Southeast Asia.|
|Grounded ships||This occurs for different reasons: negligence, weather, or lack of training||Large container ship APL Vanda was grounded last February 2016 in the UK due to technical problems and a blackout. In this case, there was no damage to the hull or any of its cargo although the authorities are still conducting an investigation into the cause of the grounding.|
You’ll Know It’s the Right Policy If It Covers:
- Financial losses
- Ship repairs
- Loss or damage to cargo
What Does Ocean Marine Insurance Not Cover?
This type of insurance does not cover the following:
- Passenger ships
- Cargo that is not in transit on a water-bound vessel unless specified by the policy. There are cases when cargo is covered by an Ocean Marine policy even if it is not yet in transit but is in the control, care and custody of the purchaser of the policy. Coverage is also possible in cases when the cargo is waiting for its scheduled ship to leave port.
- Temporary storage (unless agreed to by both parties)
- Employee strikes, civil riots or commotions
- Cost of parts for repair
- Losses from shipping delays
What Are the “Limits” on an Ocean Marine Policy?
The limits would depend on the terms if each policy. However, the factors that are considered when assessing the limits of this type of insurance include:
- Value of the goods
- Type of products (toxic, valuable, dangerous)
- The route to take and other potential hazards from start to destination
Generally speaking, the limit of this insurance type will be based on the valuation formula of the provider on the cargo.
How Much Does Ocean Marine Insurance Cost?
This type of insurance is almost always customized to suit the cargo and the client’s needs. Factors that are considered when determining the cost include:
- Exposure to loss
- INCOTERMs (a term that defines the obligations of seller and buyer when shipping goods)
- Route risk
- Destination risk
- Value of cargo
- Experience of the shipping company with the client
This type of insurance is a critical layer of protection that identifies who is financially responsible for cargo while it is in transit. Thus, it is often a non-negotiable expense when shipping goods via boat.