Marine Cargo Insurance Malaysia|CheahThimFook.com

International business community have been trading long ago but the sophistication of today’ s industrialisation economy around the world and modern information technology used in communication have seen growth in the import and export of goods globally.

Penang Bulk Port

The challenges are greater for the shipping industry and the airfreight too as today’s customers need fast delivery and timely execution of their business transactions worldwide. The exchange of goods and currencies are tremendous that the global economies can be very volatile as the world political climates have also been affected by the liberalisation of the markets in Asia, Eastern Europe and Latin Americas and the continued conflicts at the Middle East.

The demand for Marine Cargo Insurance is growing as people across the globe can easily make purchases and transfer of funds at light-speed.  So the Marine industry have to make the delivery perfectly.

Simply, Marine Cargo Insurance is the insurance purchased by merchants to insure the goods they shipped from one place/port to another place/port around the world against the perils that can cause damage to the goods to protect their potential financial loss.

It is usually effected on a “per voyage” basis that is from the time the goods leave the premises of the seller until the time they finally arrive at the buyer’s premises.

Coverage can either be made by the buyer or the seller depending on the contract of sales and the INCOTERMs.

Some of the different types of Sale Contracts, the most common affecting Marine Insurance are:

F.O.B. (Free On Board)

The seller agreed to load the good on board the vessel at his own expense and to obtain the Bills of Lading(document title to the goods issued by the shipping company).  The seller is responsible for all damage or loss until goods are on board the vessel.  The buyer only assume the risks from thereon.  Therefore, the buyer is to pay for the freight and cost of Marine Cargo Insurance for the goods for its voyage to his warehouse.

C & F (Cost and Freight)

The seller agrees to pay for the cost of freight but not the cost of Marine Cargo Insurance to send the goods on board the vessel for its voyage until the port of discharge as agreed by the buyer.
The seller is also responsible for the loss or damage to goods until delivery on to the carrying vessel but it is the responsibility of buyer to arrange insurance.

C.I.F. (Cost, Insurance & Freight)

The Seller undertakes to arrange and pay for all costs of delivering the goods and insurance up to final port of discharge or destination because the buyer has paid for these in the sale price of their contract.  The seller will instruct the insurance company to name the buyer as The consignee and the buyer has the full rights to claim under the Marine Cargo Insurance policy as though he had arranged the insurance himself.

Type of Marine Cargo Insurance Policies

  1. Individual PolicyThese are policies issued on each and every shipment upon request by the Assured.   Note: The shipments can be from the same seller to different buyers each time and to different destinations.  Example, An exporter from Penang, Malaysia exports the Durian Balik Pulau to Chiba, Japan and he also exports the Durian Musang King to Shanghai, China.  One policy is issue for Penang -Chiba and another policy for Penang Shanghai. He could be importing the Japanese Ramen from Nagoya, Japan to Penang  Another individual policy can be issued for the voyage of the Japanese Ramen from Nagoya to Penang. The premium of each policy is paid separately.
  2. Open Cover PolicyThe Open Policy is a continuous policy that is issued on certain date and remains valid for 12 months or until cancelled.  The policy provides automatic protection for all shipments described in the policy during the policy period.This arrangement is suitable for merchants who are engaged in regular import/export or internal trade. The computation of premiums rate has been predetermined by the projected sum insured based on volume of shipments for the whole duration of 12 months.  Any surplus in the actual volume against the projected volume will incur additional premiums.  The merchant will then top-up the additional premium to the insurer at the anniversary of the renewal of the policy.  There is no refund of premium for the shortfall of the actual volume against the projected volume of shipment.

Coverage in Marine Cargo Insurance

  • Shipment by vessel
  • By airfreight
  • Inland Transit
  • Sending by post or delivery by courier service
  1. Shipment By VesselTypes of coverage available are :
    • Institute Cargo Clauses ( A )
    • Institute Cargo Clauses ( B )
    • Institute Cargo Clauses ( C )

Institute Cargo Clauses ( A )

It covers all fortuitous losses of every description but excludes loss, damage or expense proximately caused by delay, inherent vice or nature of the goods.

Institute Cargo Clauses ( B )

It also covers loss or damage to goods insured attributable to earthquake, volcanic eruption or lightning and loss of or damage to interest insured by :

  • entry of sea, lake or river water into vessel
  • total loss of any package lost overboard or dropped whilst loading on to, or unloading from vessel
  • fire or explosion
  • vessel being stranded, grounded, sunk or capsized
  • overturning or derailment of land conveyance
  • collision or contact of vessel with external object other than water
  • discharge of cargo at a port of distress
  • It also covers loss or damage to interest insured caused by :
  • General Average Sacrifice
  • Jettison

Institute Cargo Clauses ( C )

It covers loss of or damage to the interest insured attributable to :

  • fire or explosion
  • vessel being stranded, grounded, sunk or capsized
  • overturning or derailment of land conveyance
  • collision or contact of vessel with external object other than water
  • discharge of cargo at a port of distress

It also covers loss or damage to interest insured caused by :

  • General Average Sacrifice
  • Jettison

Note :

General Average arises where a sacrifice is incurred in connection with a venture with a view to saving or minimising the loss as a whole. This means that some of the cargo needs to be sacrificed in order to save others. There is liability resting upon the owners of cargo to contribute towards the damages or expenses suffered by those whose cargoes are sacrificed.

General Exclusions for all Clauses ( A, B or C )

  • Wilful misconduct of the Assured
  • Ordinary leakage, loss in weight, wear and tear
  • Insufficient or unsuitability of packing
  • Inherent vice or nature of subject-matter insured
  • Unseaworthiness of vessel (when the Assured is privy to it)
  • Delay even though caused by a risk insured against
  • Insolvency or financial default of carrier
  • Deliberate damage or destruction of the subject-matter insured
  • Use of nuclear weapon
  • War and Strikes
  • Terrorism
  • Radioactive contamination, chemical, biological, bio-chemical and electromagnetic weapons
  • Nuclear energy risk
  • Seepage and pollution

SUMMARY CHART – RISK COVERED/EXCLUDED

Y = Risk Covered, N = Not Covered

RISKS CLAUSE A CLAUSE B CLAUSE C
Fire & Explosion       Y      Y       Y
Vessel/craft stranded, grounded, sunk or capsized       Y      Y       Y
Overturning or derailment of land conveyance       Y       Y       Y
Collision or contact of vessel, craft or conveyance with external object other than water       Y       Y       Y
Discharge of cargo at port of distress       Y       Y       Y
Earthquake, volcanic eruption or lightning       Y       Y       N
General Average sacrifice       Y       Y       Y
Jettison / Washing Overboard       Y       Y       Y
Entry of sea, lake or river water into vessel, craft, hold, conveyance, container, liftvan or place of storage       Y       Y       N
Loss of any package lost overboard or dropped whilst loading onto or unloading from vessel or craft       Y       Y       N
General Average & Salvage Charges        Y       Y        Y
Pirates, thieves & non-delivery        Y       N        N
  1. By AirfreightThe cover given is similar to that of consignment carried by sea. For shipment by air, there is only one type of cover. Unlike by sea where we have the A, B or C Clause, shipment by air only have the Institute Cargo Clauses (Air).
  2. Inland Transit  - The conditions of insurance under Inland Transit are :
    • Inland Transit (All Risks) ClauseIt covers all risks of loss and/or damage whilst in transit but excluding loss arising due to :
      • inherent vice or loss of market
      • mechanical derangement
      • war (war risk is excluded from inland as these risks are limited by the waterborne agreement to “overseas voyage”).
      • Inland Transport ClauseIt covers loss of or damage to the interest insured occasioned by the conveyance being on fire, derailed, overturn or in collision, struck by lightning or other accidents to the vehicle such as involuntarily leaving the road, breakdown of bridges and consequent damage to the conveyance and the interest assigned hereby.
      • Goods In TransitGood-in-transit policy provides coverage for goods transported and delivered throughout the year to destinations all over the country. The scope of coverage is the same as normal marine inland transit. The difference is that this policy is issued annually. The type of goods, transit destination and also the registration number of vehicle transporting the goods must be stated in the policy.  This is for underwriting purpose and tracking of claim history too. There are instances of hijacking of goods and the vehicle which is why these information are crucial.
      • Road Haulers / Carrier’s LiabilityThis type of insurance is popularly insured by the Carrier’s or the Transport Company to protect their own interest that is, their legal liability based on negligence liability principle and/or their contractual liability for loss of or damage to cargoes carried by them. They are mitigating their financial loss in the event that the goods they carried are damaged and the consignee are filing claims against them.
      • Sending by Post and/or Delivery by Courier ServiceThe coverage by post and/or courier service depends by the mode of carrying. It can be sent by any of the above mode (sea, air or land). In any case, the clause ‘Mail and/or Parcel Post/Courier Service Clause’ will be attached.

Institute War Clauses (not applicable to Inland Transit risks)

Marine policies may be extended to cover War risk subject to payment of an additional premium at the current rate prescribed by the Institute of London Underwriters. It must be noted that War risk cannot be granted for the transit of goods whilst on land.

The insurance against War risk attaches only when the goods are loaded on the overseas vessel and terminates on discharge from the vessel at the final port or place of discharge or on expiry of 15 days from midnight of the day of arrival of the vessel at the final port of discharge.

Institute Strike Clauses

This extension covers loss or damage caused by strikes, locked-out workmen or persons taking part in labour disturbances, riots or civil commotion and any terrorist or any person acting from a political motive. In today’s global news coverage of a political upheaval, it traveled so fast and far that protesters can easily occupy an area and make business standstill by creating unrest thus upsetting economy of a particular country and sector.

F.C.L. (Full Container Load)

Whereby goods are packed into the container at seller’s premises and unpacked at buyer’s premises. The whole container carries goods which belong to the same owner, seller or buyer.

L.C.L. (Loose Container Load)

Whereby goods are packed into the container at port of loading and unpacked at port of discharge. The container is shared with goods belonging to other person or persons. This situation is prevalent when the goods exported/imported are small in quantity that it is not economical to ship in one full container load by itself by the seller.

Transhipment

Transhipment is defined as the act of transferring goods from one vessel to another and if during a marine voyage transhipment do occurs for any reason, the Underwriters must be informed within a reasonable period of time and an additional premium will be charged. Usually a rate of 0.05% is charged in the event of transhipment. This is in view of the unexpected risks arising from the movement of the goods that can cause damage or loss due to poor handling accidents during transfer.

The seller and buyer will have to come to a common consensus and agreement on transhipment allowance as there are situations like where the original vessel could not continue the voyage due to some mechanical issue and the goods have to be unloaded from original vessel and reloaded into another vessel of the shipping line to expeditiously deliver the goods to its destination before it perish especially dealing with perishable and frozen goods.

Double Taxation Benefits

With effect from 1982, the Malaysian government is offering double taxation benefit to buyers of insurance who insure imports and exports to the country with a Malaysian registered company. The objective is to reduce the outflow of capital from the country. Therefore, most clients will prefer to purchase the marine cargo insurance policy from the locally incorporated insurance companies.

Preshipment Survey

Importers and Exporters are dealing on paper contract built-on trusts.  As a precautionary measures to minimize risks exposures, to reduce frauds and to have peace of mind, the traders can engage the services of Marine Surveyor when there are shipments by barge with cargo value exceeding RM250,000.

Pre-shipment survey is required when cargo is shipped by barge and with sum insured exceeding RM250,000.

Survey to be conducted by Independent Marine Surveyor appointed either by the Insurer or Insured. The cost incurred will be borne by the Insured. The purpose :-

  • to ensure that goods insured are properly packed and lashed on board the barge.
  • to ensure that barge will not be overloaded with cargoes which will effect the stability of barge during voyage.
  • to give on hand advise as to proper handling of cargo before, during and after loading of cargoes to the barge.
  • To inform Insurer immediately if there is any discrepancy which will effect the voyage. Example of discrepancy – overage barge, incompetent cargo handler, over valued goods etc.)

Upon completion of survey, the surveyor will have to produce the report to Insurer for risk assessment purposes.

Loading Surcharge For Overage Vessel:

An appropriate surcharge will be imposed for consignments sent on an overage vessel.  This is due to the perceived higher risks taking when voyaging on an older vessel which is more susceptible to maritime perils according to past experience.

Arranging / Conducting Discharge Surveys

The main aim in conducting discharge survey is Loss Prevention. During unloading of bulk (especially) cargoes such as wheat, flour, maize etc., and also expensive machinery needs close supervision from experienced Marine Surveyors.

Immediate action can be taken by them in the event of loss or damage to the consignment. They will be able to provide feedback on vital information immediately to the insurance Claims Department on the extent of the loss or damage. A joint survey with the Carrier’s Agent and all relevant parties can then be conducted so that all evidence of damage are recorded without delay and also avoid disputes.

The experienced Marine Surveyors and reputable Carrier’s Agent would also want to protect their impartial professional image too as they are usually patronized by big multinational corporations worldwide who would want a safe voyage and timely delivery of their goods which could cost them great losses financially and time should the untoward events happened.  An example will be the shipment of very expensive heavy oil exploring and refinery machinery which take time to customize and build.  Any damage or loss will likely upset their projects, recovery and profitability. These experts can help to settle the disputes early and avoid legal actions.

The above are summary of  the marine cargo insurance services offered by most insurance companies around the world which adhered to the ICC rules governing international trade.

For more details and quotations, please contact us.

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