In sea transportation industry, the shipping lines and shipowners need to insure their ships and machinery, and their cargo against the perils Â at sea adventure. Â Â Marine Hull Insurance covers loss or damage to hull and machinery.
The hull is described as the physical structure of the vessel which is equivalent to the chassis body of our private car while the machinery is the equipment that generates the power to move the vessel and control the lighting and temperature system such as boiler, engine, cooler and electricity generator as in our private car engines. Â The equipment that generates the power are the motor, gears, axles, flywheels, shaft, pistons, boilers, coolers(radiator in car) and other machinery parts including the propellers of the ship.
The simple illustration above between the similarity of motor car’s chassis body and engine and a ship’s hull and machinery will be helpful to those who want to learn more about the Marine Insurance.
As the risks exposure of a ship and its cargo sailing on a voyage in the ocean are very much difference from the land transportation risks, the insurance policy scope of cover is wider and depends on the Institute Time Clauses and terms. Â It is an annual policy
The terms are quite varied depending on the type of vessels such as a Oil Tanker, Oil Rigs, Container cargo ship, a bulk container cargo ship, a salvage vessel, a cruise ship, Â a ferry and a yacht (in land transportation illustration – differences between a trailer, lorries for different commercial purposes and a truck, a van and bus , a taxi and private car).
There are different categories of Time Clauses such as :
- Institute Time Clauses (Hull)
- Institute Time Clauses (FPA)
- Institute Time Clauses (Total Loss Only)
- Institute Time Clauses (Hull) -Â Provides the comprehensive coverage offered by hull insurance. Perils Covered in this policy are:
- Perils of the sea
- Violent theft
- Fire and Explosion
- Earthquake, volcanic eruptions or lightning
- Breakdown of accident to nuclear installations etc.
- Breakage of Shaft
- Contact with aircraft
- Accidents in loading etc.
- Bursting of boilers
- Barratry (Misconduct by crew of ship resulting in its damage)
- Latent of defect
- Negligence of masters etc.
- Negligence of repairers etc.
- Negligence of charterers etc. Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Perils Exclusions in the Policy
- Wear and Tear
- Loss caused by Delays
- Rats and/or vermin
- Wilful misconduct of the Assured
- Injury or damage to machine not proximate caused by maritime perils
Â Â Â Â Â Â Wars, Strikes, Malicious Acts and Nuclear exclusion
Â Â Â Â Â Â Other losses and expenses are covered
- Sue and Labour
- Pollution Hazards
- Constructive Total Loss
- 3/4th Collision Liability
- General Average and Salvage
2. Â Institute Time Clauses (FPA) Â Â – provides similar coverage to that of Hull Clauses excluding the the coverage on machinery damages in all respects.Â All vessels which exceed 15 years of age or older, if the risk accepted by underwriters, to give this coverage only. Past underwriting experiences and claim history shown that older vessels suffer serious casualties due to machinery damage. Â Therefore, insurers find it more profitable to provide this hull coverage excluding machinery damages.
3. Â Institute Time Clauses Hulls (Total Loss Only) -Â this clause only provides cover in the event of it becoming a total loss by arrangement, actual, compromised or constructive total loss. The rate for this cover is low and usually this cover is only extended to old vessel (but not more than 20 years) or on accommodation only. It is at the discretion of the individual underwriter whether to accept such risks.
Note: Â Looking at the descriptions of cover as offered by the marine hull insurance , as in Private cars motor insurance, older cars are usually carrying higher risks of damage loss, therefore, there are loading or excesses imposed by underwriters to make it profitable business.
Some insurers totally declined to provide coverage as it is deemed not profitable for this portfolio without the limitations. Â It is very much similar to the Third Party Fire and Theft Cover for vehicle above 15 years but less than 20 years and Third Party Cover for private vehicle above 20 years. Â Comprehensive Cover is readily for new cars and those with age less than 15 years.
However, the Marine Insurance premiums are NOT tariff rated as in Motor Insurance
Of course, the sea perils are very much different from the private car Â optional perils cover like windscreen and Legal Liability of Passenger and etc.
We shall examine it in the simplest form that you can understand.
There is Institute Yacht Clause which is similar to Institute Time Clause except that the vessel is substituted with yacht and to include damage to mast, sails and spars while not in a race (similar to car exclusion while the car is used for racing).
For Chartered yacht, there are extra clauses that need to be complied such as
- ‘Warranted that professional skipper & crew is in attendance at all times’
- Full details of the Skipper and Crew’s experience must be obtained.
Institute Voyage Clauses
A voyage from one port or place to another or a round voyage can encounter many risks. Â For most ordinary vessels which are usually insured under a time policy, voyage insurance is effected in such cases as delivery voyage of a newly constructed vessel from the shipyard Â to buyer or a voyage of a vessel to be repaired at shipyard. The period of coverage is usually not more than a year and the scope of coverage is almost identical Â to that of time policy. Â The FPA and Total Loss cover are also offered by many insurers.
Builders’ Risk Insurance
While a Â vessel is under construction, it is exposed to risks such as fire, tidal wave, capsize or failure in launch. Â After construction is completed, it can be taken for maiden trial trip and can be exposed to collision and sinking. Â The builder’s risk insurance effected by shipyards provides cover against all such risks. The sum insured is the contract price or the estimated completed value of the vessel if there is no contract price. The period of insurance is from the time of inception of the construction to the time of delivery. Such policy can exceed 12 months and usually can be extended by endorsement and payment of additional premiums should the construction took a longer period to complete.
Hull War And Strike Risks Insurance
War and strike risks are excluded from the cover of ordinary marine insurance policies in any market throughout the world. This insurance covers exclusions under Article 11 of the Institute Time Clauses. It can only be effected on vessels which are insured against ordinary marine risks. Â Insurers can exclude war and strike risks especially the voyage is known to be going through a war zone. The fluctuation in premiums charged usually are in tandem with the climate of the world politics and disputes around the globe.
Most insurers exclude coverage for terrorism risks.
Loss of Time Insurance
This insurance indemnifies a ship owner for loss of anticipated profits or operating costs where the insured vessel is forced to be out of commission in consequence of damage caused by maritime accident. The period of insurance is one year and the insurable value is calculated based on the following: –
- estimated operating costs
- estimated chartering to be earned
- estimated gross income of freight
The loss of time is covered on the basis of the number of days required for the completion of the repairs, counting from the day following the day of the accident. The Insurer’s liability per any one accident is limited to certain number of days up to 180 days throughout the year.
Note: Â The above description of Loss of Time Coverage is quite similar to the optional cover for daily cash allowance compensation for loss of use of private car in an accident where it has to be sent for repair at panel workshop for a certain assessed time. Â It is also quite like the Fire Consequential loss indemnity to business owner due to fire except that it is wider and included all maritime accident and its period of insurance is calculated to up to the number of days and capped at 180 days as against the fire consequential loss period by months and up to 12 months usually.