What is Marine Insurance?
Marine insurance is a type of insurance related to trade and transportation. For example, if unexpected troubles such as fire, a ship sinking, or damage caused by bad weather occurs during transportation, marine insurance compensates for the resulting damage to the cargo. This helps exporters and importers avoid significant financial losses. Despite the name "marine," it covers not only ocean transport but also air and land transport.
Unlike trade insurance, which covers all risks associated with trade transactions, marine insurance is specifically designed to cover damage to cargo during transportation. In other words, while trade insurance covers general trade risks, marine insurance focuses on covering physical damage during transport.
Types of Marine Insurance
Marine insurance can be categorized based on whether the destination of the cargo is domestic or international. If the destination is overseas, it falls under "ocean marine cargo insurance," whereas if it is domestic, it is called "inland marine cargo insurance." Additionally, if domestic transportation is conducted by means other than a ship (e.g., trucks or airplanes), it falls under "transport insurance."
Scope of Marine Insurance
In the case of used car transportation, risks include damage to the vehicle, loosening of parts due to long-distance transport vibrations, and accidents during loading onto the ship. Marine insurance compensates for these risks, allowing exporters and importers to avoid significant financial losses.
An example of marine insurance in action includes a case where a ship capsized due to bad weather during transportation, resulting in significant cargo damage. Since the importer had marine insurance, they were able to avoid substantial financial loss. Another example includes a fire at a port that damaged cargo, where marine insurance promptly covered the damage. These examples highlight the importance of marine insurance.
Generally, marine insurance covers a period "from one point to another." Specifically, it applies from the moment the cargo is loaded onto a ship or airplane for transportation until the cargo is completely unloaded at the designated destination.
Regarding ocean marine cargo insurance, compensation conditions are defined based on global standards set by the International Chamber of Commerce (ICC). There are three main conditions: "ICC A," which covers all risks, "ICC B," which covers limited risks, and "ICC C," which covers even fewer specific risks. However, damages caused by war, civil unrest, or strikes are typically excluded from coverage.
Who Bears Marine Insurance Costs - Exporter or Importer?
The party responsible for marine insurance in trade is determined by international standards known as Incoterms (International Commercial Terms). Incoterms include terms like FOB and CIF, as well as others such as EXW (Ex Works). Under EXW, the exporter is only obligated to make the goods available at a designated location, and the importer assumes all risks, including transportation and insurance. Incoterms are rules that define the allocation of costs and risks in trade, clarifying the responsibilities of exporters and importers. For example, under FOB (Free On Board), the importer bears the risk and needs to purchase insurance, whereas under CIF (Cost, Insurance, and Freight), the importer bears the risk, but the exporter is the one who takes out the insurance.
How to Calculate Insurance Premiums
The insured amount under marine insurance represents the maximum amount paid out in the event of an accident. The insured amount is calculated as "CIF price × 110%," and the insurance premium is determined by "insured amount × insurance rate." The insurance rate varies depending on factors such as the value of the cargo, the security situation in the export destination, and the insurance company.
Timing of Marine Insurance Contract
Marine insurance is typically taken out after the sales contract is signed but before transportation begins. Since there are no mandatory laws requiring insurance, it is not obligatory to take out insurance; however, it is generally recommended to mitigate risks.
If all the necessary information is not yet available, it is possible to take out "provisional insurance" to establish a temporary insurance contract. Once the information is finalized, the insurance company can be notified, and the formal insurance contract (definitive insurance) will be established.
Summary
Marine insurance is a type of insurance that compensates for cargo damage caused by incidents during transportation, helping to protect both exporters and importers from financial loss. Since international trade involves numerous risks, marine insurance is managed based on global standards. The party responsible for taking out insurance depends on the trade conditions, such as FOB or CIF, making it crucial to ensure appropriate insurance is in place for each transaction.
Anecdotes: Major Marine Insurance Payouts
- MV Rena Grounding Incident (2011)
The MV Rena ran aground near New Zealand, causing significant cargo damage and environmental pollution. The insurance company provided compensation of approximately $300 million. - Ever Given Suez Canal Blockage (2021)
The giant container ship Ever Given blocked the Suez Canal, impacting global trade. The compensation amount for this incident reached $600 million, highlighting the significant role of marine insurance in covering delays and cargo losses. - MSC Napoli Damage Incident (2007)
The MSC Napoli was damaged in the English Channel, resulting in many containers being lost at sea. Over $200 million in insurance was paid out for this incident.
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Q＆A
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What is marine insurance, and why is it important?
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Marine insurance protects against financial loss by covering damage to cargo during transportation, whether by sea, air, or land. It’s crucial for exporters and importers, helping to mitigate risks like damage from fire, accidents, or severe weather.
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What types of marine insurance are available?
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Marine insurance is divided into "ocean marine cargo insurance" for international shipments and "inland marine cargo insurance" for domestic transport. Different coverage options (ICC A, B, and C) range from full to limited protection.
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Who pays for marine insurance in international trade?
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The responsibility depends on the trade terms (Incoterms). Under FOB, the importer pays for insurance, whereas under CIF, the exporter covers the insurance cost. Other terms, like EXW, place full responsibility on the importer.
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How are marine insurance premiums calculated?
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The insured amount is typically set at "CIF price × 110%," with premiums determined by multiplying this amount by the insurance rate. The rate varies based on factors like cargo value and destination security.
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When should marine insurance be purchased?
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Marine insurance is generally arranged after a sales contract is signed but before transportation begins. If all information isn’t available, provisional insurance can be taken, to be finalized once details are confirmed.
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