Inland Marine Insurance and Ocean Marine Insurance - Coursework Example

Marine Insurance. The Executive Summary. Insurance is a policy from a financial that offers financial protection to a company, person, or other entity against possible future damages or losses. Insurance is a form of peril management which spreads the risk of various people in exchange for payments from each person. These payments are known as insurance premiums and are often paid on monthly or annual basis. There are various types of insurance policies including marine insurance policies. Section 7 of the Marine Insurance Act 1909, defines marine insurance as a contract whereby the underwriter undertakes to indemnify the insured, as per the agreement, against maritime losses arising as a result of marine adventure. Marine insurance provides protection to goods from any uncontrollable variables. Financial institutions provide maritime insurance policies that cover ships, boats, cargo, cargo storage facility and where the ships are docked. There are two types of maritime insurance; inland marine insurance and ocean marine insurance. The contract of marine insurance may be broadened to protect the assured against losses on inland waters or on any land peril which may be incidental to any sea voyage. Background of Maritime Insurance. Susan (1999, p.589) defines maritime insurance as a contract by which one party under specified consideration promises to compensate another party in monetary terms for the loss of goods that are subject to marine transport. Maritime insurance began in the 17th Century, but it took formal shape when Britain formulated the Marine Insurance Act in 1906. The Act dictates the best practice for marine businesses, and also it determines the basis for maritime insurance obligations. Marine insurance is the oldest of the numerous forms of protection against damages or losses. Mixed sea and land risks; a marine insurance contract may, through its express terms, or through usage of trade, be extended in order to protect the insured against inland waters losses or any land peril incidental to sea voyage (Baris 2005, p. 38). Maritime insurance provides cover for ships, boats, goods, or other movables exposed to maritime perils. Maritime perils mean the perils incidental to, or consequent on, the travelling of the sea, meaning the perils of the sea, war perils, fire, rovers, pirates, thieves, captures, restraints, seizures, and detainments of princes and persons, barratry, jettisons, and any other risks, either of the similar category, or which may be intended by the policy (MIA-1909 2008). Functions of Marine Insurance. Primary functions of insurance include providing protection, collective risk bearing, evaluating risk, and providing certainty. Secondary functions of insurance include preventing losses and covering larger risks with small capital. The main purpose of maritime insurance is to provide protection against financial losses for an amount, which is a close as possible to the actual losses recognized. Marine insurance enables the ship owners and sellers and buyers of goods to run their respective businesses while partly relieving themselves of the onerous financial consequences of their property’s being damaged or lost as a result of the various perils of the high seas (Jonathan and Jim 2011, p. 37). Marine insurance aims to compensate the assured for damage or loss arising out of the risk insured against. Maritime insurance adds the necessary aspect of financial security, so that the peril of an accident taking place during the marine transport is not a hindering factor in the conduct of international trade (Wayne 2011, p. 495). Marine insurance facilitates international trade by satisfying the parties involved in international trade, that the cover is sufficient to indemnify possible maritime perils. The parties in international trade are; owners of the goods, mortgagees of vessels who provided the finance for the building of vessels, ship owners, and financial institutions involved in import and export of goods (Susan1999, p.597). Who is insured in the Maritime Insurance? Baris (2005, p. 20) observes that a policy, which embodies the, marine insurance contract; specifies the name of the insured, the subject-matter assured, the peril insured against, the time, or voyage, or both, as per the case, covered by the policy, the sum (s) insured, and the names of the insurers. There are two types of marine insurance, inland marine insurance and ocean marine insurance. Ocean marine insurance covers those vessels navigating in open water. Ocean marine insurance includes cover for vessel, cargo, individuals onboard, and owners of such vessels. Wayne (2011, p. 500) demonstrates that typical maritime insurance policies cover the vessel’s hull, cargo, fire, sinking, collision, and stranding. The kind and the size of the boat, its use and the insurance history of the owner determine the cost of the insurance. Inland marine insurance covers those vessels that are not travelling on the open sea. Inland marine insurance caters for individuals owning a seafaring vessel, whether a ferry, speedboat, jet-ski, or yacht. Cover for a cargo can be included in the insurance policy if the vessel carries cargo. If the vessel transports people, the liability insurance can be included to guard the owner of the vessel against any claims relating to damage, injury, or death of the third party (Fredrick 2004, p. 178). Risks Covered by Marine Insurance. Maritime insurance is a cover that caters for perils of marine businesses or businesses involved with marine. Marine insurance covers risks arising from marine adventure. As per MIA -1909 (2008), there is marine adventure where, (a) either ship, merchandise, or other movables are under exposure to maritime perils. (b) The acquisition or earning of any freight, commission, passage money, profit, or other pecuniary benefit, or collateral for any loan, advances, or disbursements, are in danger by the exposure of insurable goods to marine perils. (c) Any third party liability may be incurred by the owner of, or other individual responsible for, or interested in, the insurable property, by reason of maritime perils. Compensation in Marine Insurance. Fredrick (2004, p. 165) note that marine insurance is a contract of reimbursement, and the amount of compensation is assessed by the extent of the insured’s or the assureds’ financial loss. The amount of compensation to be received by the assured is determined by the conditions and terms of the insurance contract. Cash payment, repair, reinstatement, and replacement are the four compensation options, but they depend on the terms of the insurance contract. The insured ought to have an interest in the subject-matter to be insured. He/she should be prejudiced by damage or loss of goods and he/she should be benefited by the secure arrival of the cargo. In order to claim compensation, the assured must have an insurable interest at the time of damage or loss (Susan1999, p.600). The principle of Cause Proxima applies during the process of compensation. This principle helps in determining the real cause of loss when numerous causes have contributed to the loss. The immediate cause of loss must be established to fix the responsibility of the underwriter. In determining the liability, the remote cause for a loss is not significant. The insurer will indemnify the financial loss, if the proximate cause is insured against. Under the principle of Utmost good faith, the insured should give complete information regarding the subject to the insured. This facilitates the processing of claims, and if either party withholds some information concerning the subject to be insured, the other party has the freedom to cancel the contract (Wayne 2011, p. 510). Indemnity. Indemnity means that the insured will only receive compensation to the extent of loss suffered. Indemnity ensures that the insured does not earn a profit from maritime insurance. The insurer undertakes to compensate the assured in monetary terms and not to replace the ship, or the cargo (Jonathan and Jim 2011, p. 58). The worth of the subject-matter assured is determined at the time of embracing the policy, but in some cases, the value is evaluated at the time of the loss. This principle aims to make sure that the assured is placed in the similar financial position he/she occupied immediately after the loss. The concepts of average and excess are essential in reinforcing this principle. The extent of indemnity is confined by policy provisions and the level of coverage (Wayne 2011, p. 498). Drawbacks of Marine Insurance. The value of various shipments depends on the fluctuations of the rates of currency, handling charges, freight, and other expenses; this poses a difficulty while determining the value of the policy. As a result, the subject-matter to be insured may be undervalued or overvalued. Most countries make use of the Britain Marine Insurance Act of 1906; however, these countries face difficulties while harmonizing this Act with the local marine insurance laws. These countries pay attention to the Marine Insurance Act 1909 focusing on marine insurance warranties, disclosure, obligations and misrepresentation of utmost good faith, and the requirement of the insurable interest. Some countries have recommended for the coverage of adventures on inland waters and the abolishment of marine insurance warranties and replacement with express warranties (Baris 2005, p. 11). Conclusion. Marine insurance is a contract whereby the underwriter undertakes to indemnify the insured, as per the agreement, against maritime losses arising as a result of marine adventure. The main function of marine insurance is to compensate the assured for damage or loss arising out of the risk insured against. Maritime insurance plays a vital role in international trade. Marine insurance protects the insured against financial loss as a result of an accident arising from maritime perils. The various policies of maritime insurance provide cover to ships, boats, goods, or other movables exposed to maritime perils. References list. Baris, S 2005, Warranties in marine insurance, Routledge, London. p. 5-50. Jonathan, R & Jim, S 2011, International Trade: An essential guide to the principles and practices of export, Kogan Page Publishers, Washington. p. 37-80. Fredrick, M 2004, The history of Lloyds and of marine insurance in Great Britain, The Lawbook Exchange Ltd, London. p. 161-200. Marine Insurance Act 1909 (MIA -1909) 2008, Australian Government, viewed 5th March 2012, p.1-40. Susan, H 1999, Cases and materials on marine insurance law, Routledge, London. p.589-620. Wayne, K T 2011, The Blackwell companion to maritime economics, John Wiley & Sons, New York. p. 490-520. Read More