Insurance

Companies protect themselves against loss or damage by taking out insurance policies, which are contracts against possible future risks.

Numerous types of policies are available to offer cover against eventualities, but the client has to decide which hazards apply to him.

First a proposal form must be completed by the firm who wants insurance cover. This tells the insurance company what is to be insured, how much the policy is worth, how long it is to run, and under what conditions insurance is to be effected, as the policy may not automatically cover the insured against all risks. Goods are normally insured for the full amount of their value, which is calculated as: cost of goods + amount of freight + insurance premium + a percentage of the total sum to represent a reasonable profit for the seller.

Underwriters, who will pay compensation in the case of a claim, then work out the premium, i.e. the price of insurance. In the U.K. the premium is usually quoted in pence per cent, i.e. pence per hundred pounds. This means that for every ₤100 of insurance you will have to pay x pence.

As insurance is based on the principle of good faith, and supported by laws against fraud, insurance companies accept that the items being insured belong to the client, are not being insured more than once, are of the value started, and that the client will follow the conditions of the policy.

If the insurers are satisfied with the information given on the proposal form, they will issue a cover note. This is not the policy itself, but an agreement that the goods are covered until the policy is ready. Once the policy is sent it will tell the client that he is indemnified against loss or damage under the conditions of the policy. Indemnification means that the insurance company will compensate the client to restore him to the original position before the loss or damage.

Companies make claims for loss or damage by filling in a claims form, which tells the insurance company what has happened. If the insurers accept the claim, often after an investigation, they will then pay compensation.

The insurance company will not pay compensation if the claimant was negligent; or suffered the loss outside the terms of policy; or misled the insurers when obtaining insurance.

Marine insurance policies

Marine insurance offer shippers a variety of policies to cover shipments. However, most insurers will cover consignments under all risk policies which will allow compensation in the event of war, strikes, civil disturbances, etc. These policies are in the form of valued policies and are based on the stated value of the invoice, plus insurance, freight, and an extra percentage of 10%, 20%, or 30%, etc. profit margin for the consignment.

There are, however, unvalued policies, when the value of the goods have not been agreed in advance and are assessed at the time of loss. This means that the consignor will, if the goods are damaged or destroyed, get the market price as compensation.

The above policies fall under five main headings:

1. Time policy, which insures goods or the vessel for 12 months;

2. Voyage policy, which covers the cargo on a particular voyage;

3. Mixed policy, which covers a particular voyage from A to B and then for a further period of time;

4. Floating policy, which gives cover for a particular amount so that it will not be necessary to continually write a new policy for each cargo carried by the ship;

5. Open cover agreements, which are made between the underwriter and shipper, with the latter informing the underwriter, on a declaration form, whenever the shipment is made, and receiving the policy or certificate after shipment.

The usual procedure is to insure against all risks. All risk policies generally cover against every eventuality. This involves a W.A. clause (with average clause). W.A. means that the insurers pay claims for partial losses, whereas free of particular average (F.P.A.) means that partial losses are not covered by the insurance. Therefore, a policy with a W.A. clause will cost more.

Particular average means partial loss or damage accidentally caused to the ship or to a particular lot of goods. Particular average must be borne by the owners of the property suffering the loss and is distinct from general average which is distributed over the whole ship, freight and cargo.

General average means any extraordinary loss, damage or expenditure incurred for the purpose of preserving all the interests imperilled – the ship, the cargo and the freight: these are said to form a common adventure.

As in the case of large claims in non-marine insurance average adjusters, i.e. assessors are called in to examine damage and estimate compensation. In a c.i.f. transaction the exporters transfer the right to compensation, as the importer holds the BL. In f.o.b. and c. & f. transactions importers hold the insurance policy as they arrange their own insurance.