Ocean Marine Insurance

Everything You Need to Know About Protecting Your Property at Sea and In Transit 

Goods travel all around the world on hundreds and thousands of ships loaded with cargo. These cargoes carry valuable property such as raw materials, foreign-manufactured products, or goods to be sold overseas. Therefore, businesses should opt for ocean marine insurance to protect their merchandise, goods, workers, passengers, and crews at sea and in transit. The World Shipping Council states that the international shipping liner industry transported approximately 130 million freight containers with an estimated value of over $12 trillion in the year 2017. 

There are multiple events that might cause loss or damage to property, or goods. Some of them are: 

  • Crashing into objects or other ships at sea 
  • Pirate attacks 
  • Sinking 
  • Fire 
  • Capsizing
  • Barratry 
  • Jettisoning 
  • Bad weather 

Damages resulting from these events can cost millions of dollars to firms and affect their daily business operations. For instance, the National Oceanic and Atmospheric Administration states that there were 14 weather and climate disaster events with losses exceeding $1 billion each across the United States in 2019. 

In this article 

What is ocean marine insurance? 

Ocean marine insurance is a type of commercial insurance that covers the risks associated with the transportation of goods across the ocean. The ocean marine policy provides coverage for the vessel itself, also known as the hull. Moreover, it also provides coverage for the cargo, the revenue that the shipping company stands to make, and liabilities associated with shipping.  

Ocean marine insurance protects the property in marine transport across both foreign and domestic waters. In addition, it also protects the propety in all the stages in the shipment, such as land or air transit associated with the marine shipment.   

What does ocean marine policy cover?  

Ocean marine insurance provides the following types of coverage:  

  • Hull and machinery coverage: 

Ocean marine insurance provides coverage to vessels, fixed machinery, and operating equipment from any sort of physical damage. The physical damages can be a result of accidents, collisions, fire, explosion, or tidal waves. In addition, hull and machinery coverage also includes an additional provision for collision liability coverage. This covers third party property damage such as collisions at sea or with fixed objects causing physical damage. However, this clause does not cover the liability arising from bodily injury.   

Here’s an example of this coverage:  

A fire breaks out in the ship due to an explosion in the engine. It damages the entire body of the ship. In this scenario, hull and machinery coverage will compensate the loss resulting from this fatal event.  

  • Protection and indemnity insurance 

Ocean marine policy provides coverage to the vessel owners from legal liability arising from bodily injury to the crew, passengers, or others while aboard the vessel. The liability can arise due to the following reasons:  

  • Vessel’s operation causing an injury, illness, or loss of life. 
  • Medical expenses resulting from an injury, illness, or loss of life. 
  • Expenses resulting from quarantine. 

Here’s an example of this coverage:  

Many crew members fell ill due to an outbreak of flu on a ship. As a result, all the affected crew members were taken to the hospital for treatment after the ship docked at the port. Fortunately, protection and indemnity coverage will provide aid for all the medical expenses for the shipowner.  

  • Marine general liability insurance 

Ocean insurance protects the insured against liabilities that may arise from their marine or vessel operations. Such liabilities can result from the following reasons:  

  • Collision leading to damage to other vessels or property   
  • Incidents other than collision causing damage to other vessels or property  
  • Removal and cleanup of wreck  
  • Damage to cargo in specific situations  
  • Oil spill or civil pollution liabilities  

Here’s an example of this coverage:  

A container cargo collided with another container ship while in transit. As a result of the collision, the cargo that was on board of the other ship was severely damaged. In this case, marine general liability insurance covers the loss resulting from the collision 

  • Ocean cargo insurance 

Ocean marine cargo coverage provides aid for losses arising from physical damage to the cargo. The physical damage can be a result of many fatal events. For instance, natural disasters, collisions, pirate attacks, cargo abandonment, or customs rejection can cause physical damage to the cargo. Some policies also cover the losses from theft. The coverage is for cargo that is in transit or at an onshore location.  

As per a report by Logistics Management, 10,000 containers of 130 million shipped containers fall into the ocean every year due to severe weather and high seas, accidents, or incorrect stowage. This might seem like a small number as compared to the total number of containers shipped. However, the owners of the cargoes that fell into the ocean faced huge losses and claimed for ocean marine policy.  

Cargo coverage not just only covers a single shipment, but can also cover all the shipments if written in an open-policy basis 

Here’s an example of this coverage:  

A men’s clothing retailer imports a shipment of clothing items from a supplier in China. The ship carrying all the items caught fire during shipment. This led to a massive loss to the retailer as most of the items were damaged. In this scenario, ocean cargo coverage would cover the loss for the retailer.   

  • Ocean freight insurance 

Ocean marine insurance policy provides financial protection to the owner of the vessel if the cargo is damaged or lost. Moreover, it also covers shipping costs. In case of damage to the cargo, the shipper has to ship a replacement cargo, resulting in a second payment of shipping costs. In such cases, ocean freight insurance will provide financial protection to the vessel owner.

Here’s an example of this coverage:  

A shipping corporation lost a valuable cargo during the shipment process. They will now have to face a substantial financial loss. Fortunately, freight coverage compensates for all the losses that they have to bear from this loss.

Looking for the best ocean marine insurance for your business? 

Get a personalized quote for ocean marine insurance policy today! 

Common exclusions of ocean marine insurance

Here are the most common exclusions of commercial ocean marine policies:  

  • Passenger shipsOcean marine policy does not include passenger ships in its coverage, for instance, ferries.  
  • Employee strikes, civil riots, or commotions: This policy does not include liabilities arising from employee strikes, civil riots, and commotions.   
  • War: This policy does not cover damages or liabilities resulting from war or war-like incidents. 
  • Cost of parts for repair: This policy does not cover the cost for repair of parts.  
  • Losses from shipping delays: This policy does not provide coverage for losses resulting from a delay in shipment.   
  • Willful misconduct: This policy does not cover losses resulting from mere negligence, reckless disregard, and willful misconduct.  
  • Ordinary wear and tear: Ocean marine policy is not liable for damages resulting from natural wear and tear. Such wear and tear can be a result of hidden defects, insects, rust, depreciation, gradual deterioration, and heat or cold.  

Types of insurance that include ocean marine policy  

Here are the types of insurances that include ocean marine policy:  

Looking for the best ocean marine insurance for your business? 

Get a personalized quote for ocean marine insurance policy today! 

Factors that determine the cost of ocean marine insurance

The cost of any insurance policy depends on various factors. Here are some of the key factors that affect the cost of ocean marine insurance policy.  

  • Loss history: The loss history and exposure to loss factors are important factors that determine the policy rate. It is because the premiums for clients increase if they have made multiple claims in the past. Factors such as claims history, nature of loss, and details of the past claims are taken into consideration before pricing the premium of the policy.    
  • INCOTERMs: According to Investopedia, INCOTERMs are a set of instructions used in the global transportation of goods. It defines the division of responsibility between the shipper and the consignee. This affects the cost of the policy as it identifies the liabilities of both parties.   
  • Route risk: Specific routes are considered riskier as compared to other ones based on weather or pirate attacks. Thus, shipments that take the more dangerous routes are usually charged higher than those that do not take the same route.   
  • Destination risk: Destinations that are difficult to reach for the shipments increases the cost of ocean marine policy. For instance, shipments on a tough terrain or politically unstable locations are expensive.
  • Vessel’s type and construction: The construction of any vessel differs in terms of material used in construction, structural strength, and adaptability. All these aspects have an impact on its ability to carry different types of cargo. Moreover, the type of vessel in terms of age, classification society, and the shipping company managing the vessel also affects the cost of the policy.
  • Nature of the goods: Industrial goods such as cement usually have higher premium rates as it has high chances of getting damaged or lost in the shipment process. Also, perishable goods have higher premium rates because it has lower salvage value. Thus, goods with a lower salvage value are risky and have higher premium rates.  
  • Policy conditions: The premium rates are based on coverage included in the policy along with the client’s need for coverage. Some policies cover the total loss, and some only cover the partial loss. Furthermore, insurers also add or limit various clauses in the policy.
ocean-marine-insurance

Real world ocean marine insurance claims  

Container ship fires have been a significant source of large claims on ocean marine insurance policy. There have been multiple cases of container ship fires in recent years.  

According to Clyde&Co, the Maersk Honam fire in March 2018 destroyed around one-third of the 7,800 containers valued around $75 million on board the vessel at the time. Similar other incidents of container ship fires have occurred in the past, such as the MSC Daniela in 2017, CCNI Arauco in 2016, MSC Flaminia in 2012.   

Such fires on container ships are difficult to extinguish and typically lead to large complex insurance claims. It took over a month to completely distinguish the fire in the Maersk Honam case. In addition, it took several months to discharge the cargo from the ship finally. Most importantly, the loss from this case is considered to be the largest claim for ocean marine insurance. The case might take several years to settle due to the complications involved in it.

Frequently Asked Questions (FAQs) 

What does cargo mean in ocean marine insurance?

In an ocean marine policy, cargo refers to the products that are inside the vessel or hull. Cargoes can include any sort of goods such as cars, papers, clothes, mobile phones, or cement. Cargo is the general term used for all the items that are being transported in a hull regardless of the nature of the goods.   

How does ocean marine insurance work?

Ocean marine insurance works just like any other type of insurance policy. It provides coverage for damages related to the vessel, the cargo, and liability associated with shipping.  

Why should I purchase ocean marine insurance?

Ocean marine insurance is essential for many businesses such as export or import of goods, marine contracting, supply of marine services, or marine transportation services. This policy enables you to overcome unforeseen financial losses. Moreover, it also helps to reduce your exposure to financial loss resulting from damages or loss to goods at sea.   

What are INCOTERMs, and how does it affect the decision making in the purchase of ocean marine policy?

INCOTERMs clarify the responsibility that the seller or the buyer has in regard to the loss or damage to the goods for a portion or all of the transit. People decide to get an ocean marine policy if they are responsible for the loss or damage to the goods and also have a financial interest in them.  

How is ocean marine insurance different from inland marine insurance?

Ocean marine insurance provides coverage for property transferred on the water. It provides coverage to the vessel, cargo, and the liabilities related to shipping across both foreign and domestic waters, including all the stages in the shipment. Whereas, inland marine insurance only provides coverage for property that is transported overland.   

Looking for the best ocean marine insurance for your business? 

Get a personalized quote for ocean marine insurance policy today!