Marine Insurance

LECTURER: MRS JOANA BOTCHWAY

GRADUATE ASSISTANT: MICHAEL GRADUATE ASSISTANT: MICHAEL DZIKUNUDZIKUNU

Saturday, April 8, 2023 1Michael

COURSE OUTLINE1 GENERAL INTRODUCTION

TO MARINE INSURANCE.

1.1 Risk and maritime transport activities.

1.2 Risk management options.1.3 Historical Development of Marine Insurance

1.4 Scope of Marine Insurance


2. MARINE INSURANCE MARKETS AND PRACTITIONERS

2.1 Marine insurance markets and others.

2.2 Insurance associations.


3. MARINE INSURANCE PRINCIPLES

3.1 Insurable interest3.2 Utmost good faith3.3 Indemnity3.4 Proximate cause3.5 Subrogation


4 EFFECTING MARINE INSURANCE

4.1 Role of Brokers

4.2 Market Procedures

4.3 Marine Polices


5 MARINE LOSSES

5.1 Total Loss5.2 Partial Loss

6MARINE LIABILITY INSURANCE6.1 History of protection and

indemnity clubs.6.2 Cover provided

6.3 Underwriting principlesSaturday, April 8, 2023 6Michael

TEXTBOOKSIntroduction to risk management and insurance

by Mark Dorfman.Marine insurance – principles and basic practise

by R H Brown.Marine insurance volume II by R H Brown.Marine insurance – principles and basic practise

by Mishra.REFERENCES:Marine insurance Act (1906)ICS notesInternet


GENERAL INTRODUCTION TO MARINE INSURANCE.

1.1 Risk and maritime transport activities.

Saturday, April 8, 2023 Michael 8

PERIL: Is the cause of the Loss e.g. stranding, sinking, collision, and extra ordinary heavy weather, which are referred to as perils of the sea. We can mention Fire, Piracy / barratry, thieves, Jettison which are also known as perils on the sea.Saturday, April 8, 2023 Michael 9

PURE RISK & SPECULATIVE RISK.(or static and dynamic risks)

Not insurableInsurable Some insured by derivatives

SecuritiesRISK PROFIT EQUATION. The higher the risk the higher the profitSaturday, April 8, 2023 Michael 10

WHAT RISKS ARE ASSOCIATED WITH SHIPPING.


Risks in shipping may be classified into five categories:

1. Technical risks – those that attach to the ship herself and its equipment on board.

2. Financial risks - These are usually imposed by method of financing projects particularly acquisitions, ratio of equity capital to borrowed funds (capital gearing). High ratio attaches risks to future cash flows in that cost of capital have to be met whether or not profits are being made.In periods of depression where profits are low excessive pressure on cash flow create liquidity problems for companies.


Commercial risks - Relate to trading activities of ship and occur in connection with economic developments which affect ship operations. Usually in the form of market conditions (quotas) or operating conditions.Major commercial risks in shipping are freight rate volatility, competition, and port delays.

Political risks - Relate to rules of the game which comprise either international or national standards for operating the ship compliance with which more often than not has cost implications. Political risks may also be viewed in the context of countries engaged in world trade. Outbreak of war or presence of warlike conditions puts vessel at risk even when flying neutral flags.

Liability risks – This relates to claims from third parties which may arise out of:(1) contractual relationships such as cargo owners, crew

members. In this losses a limit of liability may apply depending on the terms or rules governing the carriage contract.

(2) non contractual relations (tortuous acts) as collision for which owner of offending ship becomes liable, contact with fixed or floating objects, damage to shore installations and port facilities.

RISK MANAGEMENT IS THE LOGICAL DEVELOPMENT AND CARRYING OUT

OF A PLAN TO DEAL WITH POTENTIAL LOSSES WITH THE PURPOSE OF MANAGING AN ORGANIZATION’S EXPOSURE TO LOSS AND PROTECT ITS ASSETS BY OFFSETTING RISK EVENTS OR MITIGATING THEIR EFFECTS.

THE RISK MANAGEMENT PROCESS. Risk management activities occur before, during and

after losses.Step 1. Identify and measure potential loss

exposures.Step 2. Choose the most efficient methods of

controlling and financing loss exposures and implementing them.

Step 3. Monitor outcomesSaturday, April 8, 2023 Michael 13

Michael

Step 1. Identify & measure potential loss exposuresTo logically measure loss exposures it is ideal to consider Loss in its four distinct dimensions.

1. Direct property loss2.Consequential losses3.Liability losses4. Losses caused by death, disability or unplanned retirement of key people.


Step 2. Loss Control and Risk Financing (a) LOSS CONTROL:

Loss control activities are designed to mitigate loss cost and include:

Risk avoidance, loss prevention and loss reduction.


(b) RISK FINANCING.It determines when and by whom loss costs are borne. This includes the following alternatives.

Risk assumption. Self-insurance

Financed risk retention

Risk transfer Non-insurance

Insurance.


TERMINOLOGIESINSURER: The party agreeing to pay for the

loss(es)INSURED: The party whose loss causes the

insurer to make a claims payment.PREMIUM: The payment the insurer

receives.POLICY: The insurance contractEXPOSURE TO LOSS: The insured’s

possibility of loss.


Step 3. Monitor Outcomes Regular review of plans in line with assets

to ensure the plans meet current needs.


RISK MANAGEMENT TOOLS


RISK TRANFER(INSURANCE)

LOSS PREVENTION

RISK AVOIDANCE

RISK ASSUMPTION

Low FREQUENCY OF OCCURENCEHigh

questionsResearch and write short notes on Marine

Insurance Company Markets and associations in:1. North America2. South America3. Africa4. Europe (excluding the U.K)5. Asia and Australia.Quote your sources.


Scope Of Marine Insurance

Insurance of property – Hull and Machinery; Cargo; freightKinds of policies contracts available Time, Voyage, Building, laid up in port, dry docking Insurance of third party policy (P& I) Clubs.Saturday, April 8, 2023 Michael 21

2. MARINE INSURANCE MARKETS AND PRACTITIONERS2.1 MARINE INSURANCE MARKETS.

1.Lloyd’s Market2.London Company market3.Markets outside London e.g

Liverpool Market, Belfast, Manchester, Dublin, Glasgow, and Bristol. Other Maritime Centres. E.g Oslo, copenhagan, etc.


2.2 Marine Insurance Market Practitioners.1. Brokers.2. Underwritters3. Propossers 4. Lloyd’s Agents5. Marine Insurance Company Agents.

2.3 INSURANCE ASSOCIATIONS1. The British Insurance brokers’ associations (CIB

& LIBA)

2. Institute of London Underwriters.


PRINCIPLES OF INSURANCEINSURABLE INTEREST

The two broad classifications are:

a) Cargo Interests.

b) Hull Interests.

c) Incidental Interests.


CARGO INTERESTS.1. Ownership2. Shipping costs3. Insurance Charges (MIA 1906 sec 13)4. Anticipated Profit5. Partial ownership (MIA 1906 sec 8)6. Defeasible interest( sec 7)7. Contingent interest (sec 7)8. Bottomry and respondentia (sec 10)9. Forwarding expenses10.Commission11.Liability interest.12.Cargo Specie.


HULL INTERESTS1. Ownership2. Partial ownership3. Insurance Charges4. Charterer’s Interest5. Charterer’s Freight6. Freight7. Disbursements8. Mortgagee’s interest (MIA 1906 Sect, 14)9. Contractual Liability (covered by P&I)10.Third party liability11.P&I Interest


INCIDENTAL INTERESTS

1. Master’s and seamen’s wages (MIA 1906 Sect, 11)

2. Reinsurace.

Some terms of importance:

Double insurance Co-insurance Underinsurance Assignment of policy/interest


Marine Insurance

Documents

marine insurance principles

marine insurance markets

marine insurance act

marine insurance volume

marine losses5

insurance associations

michael sea

political risks