write a summary report (include main points and keypoints ignore pages after page 19 dont include questions just a report summary
m4-2f.p65 DIPLOMA IN INSURANCE SERVICES MODULE - 4 Notes Marine Insurance Practice of General Insurance 18 2.0 INTRODUCTION This is the oldest branch of Insurance and is closely linked to the practice of Bottomry which has been referred to in the ancient records of Babylonians and the code of Hammurabi way back in B.C.2250. Manufacturers of goods advanced their material to traders who gave them receipts for the materials and a rate of interest was agreed upon. If the trader was robbed during the journey, he would be freed from the debt but if he came back, he would pay both the value of the materials and the interest. The first known Marine Insurance agreement was executed in Genoa on 13/10/1347 and marine Insurance was legally regulated in 1369 there. Marine Insurance Cargo Hull 2.1 OBJECTIVES Know the meaning of Marine insurance Buy the Marine insurance Settle the claim under Marine Insurance Know the inland transit/overseas transit. Know what is not covered under Marine insurance 2 MARINE INSURANCE MODULE - 4 Practice of General Insurance Notes 19 Marine Insurance DIPLOMA IN INSURANCE SERVICES 2.2 MEANING OF MARINE INSURANCE A contract of marine insurance is an agreement whereby the insurer undertakes to indemnify the insured, in the manner and to the extent thereby agreed, against transit losses, that is to say losses incidental to transit. A contract of marine insurance may by its express terms or by usage of trade be extended so as to protect the insured against losses on inland waters or any land risk which may be incidental to any sea voyage. In simple words the marine insurance includes A. Cargo insurance which provides insurance cover in respect of loss of or damage to goods during transit by rail, road, sea or air. Thus cargo insurance concerns the following : (i) export and import shipments by ocean-going vessels of all types, (ii) coastal shipments by steamers, sailing vessels, mechanized boats, etc., (iii) shipments by inland vessels or country craft, and (iv) Consignments by rail, road, or air and articles sent by post. B. Hull insurance which is concerned with the insurance of ships (hull, machinery, etc.). This is a highly technical subject and is not dealt in this module. 2.3 FEATURES OF MARINE INSURANCE 1) Offer & Acceptance: It is a prerequisite to any contract. Similarly the goods under marine (transit) insurance will be insured after the offer is accepted by the insurance company. Example: A proposal submitted to the insurance company along with premium on 1/4/2011 but the insurance company accepted the proposal on 15/4/2011. The risk is covered from 15/4/2011 and any loss prior to this date will not be covered under marine insurance. 2) Payment of premium: An owner must ensure that the premium is paid well in advance so that the risk can be covered. If the payment is made through cheque and it is DIPLOMA IN INSURANCE SERVICES MODULE - 4 Notes Marine Insurance Practice of General Insurance 20 dishonored then the coverage of risk will not exist. It is as per section 64VB of Insurance Act 1938- Payment of premium in advance.(Details under insurance legislation Module). 3) Contract of Indemnity: Marine insurance is contract of indemnity and the insurance company is liable only to the extent of actual loss suffered. If there is no loss there is no liability even if there is operation of insured peril. Example: If the property under marine (transit) insurance is insured for Rs 20 lakhs and during transit it is damaged to the extent of Rs 10 lakhs then the insurance company will not pay more than Rs 10 lakhs. 4) Utmost good faith: The owner of goods to be transported must disclose all the relevant information to the insurance company while insuring their goods. The marine policy shall be voidable at the option of the insurer in the event of misrepresentation, mis-description or non-disclosure of any material information. Example: The nature of goods must be disclosed i.e whether the goods are hazardous in nature or not, as premium rate will be higher for hazardous goods. 5) Insurable Interest: The marine insurance will be valid if the person is having insurable interest at the time of loss. The insurable interest will depend upon the nature of sales contract. Example: Mr A sends the goods to Mr B on FOB( Free on Board) basis which means the insurance is to be arranged by Mr B. And if any loss arises during transit then Mr B is entitled to get the compensation from the insurance company. Example: Mr A sends the goods to Mr B on CIF (Cost, Insurance and Freight) basis which means the insurance is to be arranged by Mr A. And if any loss arises during transit then Mr A is entitled to get the compensation from the insurance company. 6) Contribution: If a person insures his goods with two insurance companies, then in case of marine loss both the insurance companies will pay the loss to the owner proportionately. Example; Goods worth Rs. 50 lakhs were insured for marine insurance with Insurance company A and B. In case of loss, both the insurance companies will contribute equally. MODULE - 4 Practice of General Insurance Notes 21 Marine Insurance DIPLOMA IN INSURANCE SERVICES 7) Period of marine Insurance: The period of insurance in the policy is for the normal time taken for a particular transit. Generally the period of open marine insurance will not exceed one year. It can also be issued for the single transit and for specific period but not for more than a year. 8) Deliberate Act: If goods are damaged or loss occurs during transit because of deliberate act of an owner then that damage or loss will not be covered under the policy. 9) Claims: To get the compensation under marine insurance the owner must inform the insurance company immediately so that the insurance company can take necessary steps to determine the loss. 2.4 OPERATION OF MARINE INSURANCE Marine insurance plays an important role in domestic trade as well as in international trade. Most contracts of sale require that the goods must be covered, either by the seller or the buyer, against loss or damage. Who is responsible for affecting insurance on the goods, which are the subject of sale? It depends on the terms of the sale contract. A contract of sale involves mainly a seller and a buyer, apart from other associated parties like carriers, banks, clearing agents, etc. Sales Contract Banks Clearing Agents Carriers etc. Buyer Seller The principal types of sale contracts, so far as Marine insurance is directly concerned, are as follows: DIPLOMA IN INSURANCE SERVICES MODULE - 4 Notes Marine Insurance Practice of General Insurance 22 Type of contract Responsibility for insurance Free on Board The seller is responsible till the goods (F.O.B. Contract) are placed on board the steamer. The buyer is responsible thereafter. He can get the insurance done wherever he likes. Free on Rail The provisions are the same as in (F.O.R. Contract) above. This is mainly relevant to internal transactions. Cost and Freight Here also, the buyer’s responsibility (C&F Contract) normally attaches once the goods are placed on board. He has to take care of the insurance from that point onwards. Cost, Insurance & In this case, the seller is responsible Freight for arranging the insurance upto (C.I.F. Contract) destination. He includes the premium charge as part of the cost of goods in the sale invoice. Practice in International trade The normal practice in export /import trade is for the exporter to ask the importer to open a letter of credit with a bank in favour of the exporter. As and when the goods are ready for shipment by the exporter, he hands over the documents of title to the bank and gets the bill of exchange drawn by him on the importer, discounted with the bank. In this process, the goods which are the subject of the sale are considered by the bank as physical security against the monies advanced by it to the exporter. A further security by way of an insurance policy is also required by the bank to protect its interests in the event of the goods suffering loss or damage in transit, in which case the importer may not make the payment. The terms and conditions of insurance are specified in the letter of credit. For export/import policies, the-Institute Cargo Clauses (I.C.C.) are used. These clauses are drafted by the Institute of London Underwriters (ILU) and are used by insurance companies in a majority of countries including India. MODULE - 4 Practice of General Insurance Notes 23 Marine Insurance DIPLOMA IN INSURANCE SERVICES INTEXT QUESTIONS 2.1 1. Who will get claim amount in case of marine insurance? 2. If sale contract is FOB, who should insure the goods? 2.5 PROCEDURE TO INSURE UNDER MARINE INSURANCE A) Submission of form B) Quotation from the Insurance Company C) Payment of Premium D) Issue of cover note/Policy A) Submission of form a) The form will have the following information: a) Name of the shipper or consignor (the insured). b) Full description of goods to be insured: The nature of the commodity to be insured is important for rating and underwriting. Different types of commodities are susceptible for different types of damage during transit- sugar, cement, etc are easily damaged by sea water; cotton is liable to catch fire; liquid cargoes are susceptible to the risk of leakage and crockery, glassware to breakage; electronic items are exposed to the risk of theft, and so on. c) Method and type of packing: The possibility of loss or damage depends on this factor. Generally, goods are packed in bales or bags, cases or bundles, crates, drums or barrels, loose packing, paper or cardboard cartons, or in bulk etc. d) Voyage and Mode of Transit: Information will be required on the following points : i. the name of the place from where transit will commence and the name of the place where it is to terminate. ii. mode of conveyance to be used in transporting goods, (i.e.) whether by rail, lorry, air, etc., or a combination of two or more of these. The name of the vessel is to be given when an overseas voyage is involved. In land DIPLOMA IN INSURANCE SERVICES MODULE - 4 Notes Marine Insurance Practice of General Insurance 24 transit by rail, lorry or air, the number of the consignment note and the date thereof should be furnished. The postal receipt number and date thereof is required in case of goods sent by registered post. iii. If a voyage is likely to involve a trans-shipment it enhances the risk. This fact should be informed while seeking insurance. Trans-shipment means the change of carrier during