Marine Insurance

LECTURER:

GRADUATE ASSISTANT:

Thursday, September 17, 2009 Michael

MRS JOANA BOTCHWAY MICHAEL DZIKUNU 1

COURSE OUTLINE GENERAL INTRODUCTION TO MARINE INSURANCE.

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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 Thursday, September 17, 2009 Michael

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MARINE INSURANCE MARKETS AND PRACTITIONERS 2.1

Marine insurance markets and others.

2.2

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Insurance associations.

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3.

MARINE INSURANCE PRINCIPLES

3.1 3.2 3.3 3.4 3.5

Insurable interest Utmost good faith Indemnity Proximate cause Subrogation

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EFFECTING MARINE INSURANCE 4.1 Role of Brokers 4.2 Market Procedures 4.3 Marine Polices

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MARINE LOSSES 5.1 Total Loss 5.2 Partial Loss

4 MARINE LIABILITY INSURANCE 6.1 History of protection and indemnity clubs. 6.2 Cover provided 6.3 Underwriting principles Thursday, September 17, 2009 Michael

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TEXTBOOKS Introduction 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 notes Internet Thursday, September 17, 2009 Michael

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GENERAL INTRODUCTION TO MARINE INSURANCE. 1.1 Risk and maritime transport activities.

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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 Thursday, September 17, 2009 Michael sea.

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PURE RISK & SPECULATIVE RISK. (or static and dynamic risks) Not insurable Insurable Some insured by derivatives Securities RISK PROFIT EQUATION. The higher the risk the Thursday, September 17, 2009 Michael 10 higher the profit

WHAT RISKS ARE ASSOCIATED WITH SHIPPING.

Risks in shipping may be classified into five categories: Technical risks – those that attach to the ship herself and its equipment on board.  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 Thursday, September 17, 2009 Michael create liquidity problems for companies. 11

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 Thursday, September 17, 2009 Michael 12 fixed or floating objects, damage to shore installations and

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 outcomes Thursday, September 17, 2009 Michael

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potential loss exposures

To logically measure loss

exposures it is ideal to consider Loss in its four distinct dimensions.

3. Direct property loss 4.Consequential losses 5.Liability losses 6. Losses caused by death, disability

or unplanned retirement of key people.

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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. Thursday, September 17, 2009 Michael

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(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.

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TERMINOLOGIES INSURER: 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 contract EXPOSURE TO LOSS: The insured’s possibility of loss.

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

to ensure the plans meet current needs.

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RISK MANAGEMENT TOOLS 

RISK TRANFER (INSURANCE)

RISK ASSUMPTION

Low

RISK AVOIDANCE

LOSS PREVENTION

FREQUENCY OF OCCURENCE

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questions

Research and write short notes on Marine

Insurance Company Markets and associations in: 1. North America 2. South America 3. Africa 4. Europe (excluding the U.K) 5. Asia and Australia.

Quote your sources.

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Scope Of Marine Insurance

Insurance of property – Hull and Machinery; Cargo; freight Kinds of policies contracts available Time, Voyage, Building, laid up in port, dry docking Thursday, September 17,of 2009 Michael  Insurance third party policy (P& I) Clubs.

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2. MARINE INSURANCE MARKETS AND PRACTITIONERS 2.1 MARINE INSURANCE MARKETS. 3.Lloyd’s Market 4.London Company market 5.Markets outside London e.g

Liverpool Market, Belfast, Manchester, Dublin, Glasgow, and Bristol. Other Maritime Centres. E.g Oslo, copenhagan, etc. Thursday, September 17, 2009 Michael

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2.2 Marine Insurance Market Practitioners. 1. Brokers. 2. Underwritters 3. Propossers 4. Lloyd’s Agents 5. Marine Insurance Company Agents.

2.3

INSURANCE ASSOCIATIONS

8. The British Insurance brokers’ associations (CIB &

LIBA) 10. Institute of London Underwriters. Thursday, September 17, 2009 Michael

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PRINCIPLES OF INSURANCE INSURABLE INTEREST

The two broad classifications are: a)

Cargo Interests.

c)

Hull Interests.

e)

Incidental Interests.

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CARGO INTERESTS. 1. Ownership 2. Shipping costs 3. Insurance Charges (MIA 1906 sec 13) 4. Anticipated Profit 5. Partial ownership (MIA 1906 sec 8) 6. Defeasible interest( sec 7) 7. Contingent interest (sec 7) 8. Bottomry and respondentia (sec 10) 9. Forwarding expenses 10. Commission 11. Liability interest. 12. Cargo Specie. Thursday, September 17, 2009 Michael

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HULL INTERESTS 1. Ownership 2. Partial ownership 3. Insurance Charges 4. Charterer’s Interest 5. Charterer’s Freight 6. Freight 7. Disbursements 8. Mortgagee’s interest (MIA 1906 Sect, 14) 9. Contractual Liability (covered by P&I) 10. Third party liability 11. P&I Interest Thursday, September 17, 2009 Michael

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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 Thursday, September 17, 2009 Michael

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