Marine Insurance Underwriting and Rating

Underwriting involves application of relevant knowledge and skills of insurance to assess risk and decide on the terms, conditions and rate of acceptance or otherwise. Rating on the other hand deals with evaluating a risk and pricing it in such a way that an adequate, competitive and reasonable premium is realized. The factors taken into account include:

HULL

In considering the hull risk, the major factors taken into account are;

• The type of the vessel e.g. tanker, general cargo, dry bulk, dredger, passenger liner, container vessel or fishing vessel
• Construction of the vessel, e.g. whether constructed of steel, wood
• Name of the builder and place of build, tonnage of the vessel
• Valuation of the vessel
• Port of Registry and registration certificate, and flag. This is to enable the underwriter ascertain whether the vessel is registered under Flag of Conveyance(FOC) in which case is considered to be a high risk
• Trade and related details such as nature of cargo usually carried, record of ownership and management
• Whether the vessel is given on charter
• Insurance related details such as period for which the cover is required, previous insurance and claim history.

Cargo Insurance Underwriting

There is no standard proposal form for marine cargo insurance. The risk is assessed by the underwriter on the basis of the information given on the declaration form, which is to be completed and signed by proposers. The declaration form contains the following details:

• Name and address of the proposer and his business
• Description of goods to be insured, number of packages, nature of packaging, marks and numbers.
• Name of carrying vessel, mode of other conveyances, like road, rail or air, as applicable
• Description of voyage and transshipments if any
• Bill of Lading or air consignment if any.
• Type of insurance cover required
• Signature of proposer and date of declaration

Broadly, four factor are involved in consideration of the cargo risk, these are;

• The vessel
• The voyage or transit
• The nature of cargo or packing
• The conditions and terms of insurance

These are known discussed below;

The Vessel

• The factors that are taken into considerations as far as the vessel is concerned include:
• The fitness and seaworthiness
• The physical condition of the vessel
• Type of trade- general cargo vessels may be divided into “liner”- these are vessels that run on fixed routes and scheduled between ports (often container ships) and tramps – one with no schedule route
• Whether or not a vessel is chartered
• Whether the vessel is classified or complying with the highest classification standards, if it is, it creates confidence in structural integrity of the ship
• Age of the vessel is restricted to 15 years other than for liner vessels operating to regular advertised itineraries, in which case the age limit can be extended to 25 years.

The Voyage or Transit

• The nature of land transit b rail, or road from the time good leave the consignor’s house to the port of shipment
• Whether there will be transit to a container terminal or period in the port warehouse awaiting customs formalities. Here, the underwriter would want to know how the storage and handling facilities available in the ports are.
• Are transshipments involved?
• Whether cargo will be shipped on- deck, a cargo stored on deck is sub- standard risk because it is more exposed to weather and there are virtually no prospects of recovery from carries under subrogation because they do not come with the purview of carriage of Good by Sea Act.
• Weather conditions can be significant in relation to the size of the vessel
• At destination port, will there be discharge direct to quay or will discharge take place in mid- stream involving lighterage, will there be storage in sheds or in open. What are the handling facilities, effectiveness of security and delay in customs?
• After discharge, is there inland transit by road, rail, to the consignee’s final warehouse? here the underwriter should take into consideration the nature of such interior transits in terms of distance from the ports and methods of conveyance employed.
• Has the proposer declared the entire transit for insurance or does the insurance proposed relates only to part of the whole transit, say the latter, or the” tail end” of the transit. An underwriter who accepts tail end of the risk should obviously have the subject matter inspected before accepting the risk.

Nature of Cargo and its Packing

In cargo insurance, the nature of product or commodity insured from the point of view of its susceptibility to damage through various causes, it is a vital consideration for an underwriter to take into account. Each commodity has its own peculiar characteristics

 A wealth information is available for underwriters by a reference to Lloyds Survey Handbook which lists a number of commodities and their individual characteristics and susceptibilities to loss or damage

Importantly, this useful publication also suggests measures by which:

• Loss or damage could be prevented or minimized
• Damage goods could be reconditioned and salvaged

Packaging

• The purpose for packing goods for transit overseas or inland is to ensure that as far as possible, the goods reach destination in the same perfect condition in which they were when the y left the shippers premises.
• In this context, there are some identifiable hazards to which all cargo normally will be subject during transit. For example

1. Internal involvement during lifting and lowering of packages
2. Dropping during manual handling

• Pushing, dragging and lifting by improperly use handling aids and equipment

1. Compression pressure due to high stacks
2. Rolling, pitching, surging, swaying etc.
3. Rain water or sea water entry

• Condensation because of ships sweat, temperature changes and variations in humidity
• Theft and pilferage

1. Pressure, jolts, impacts and vibrations during rail road transits

• Insufficient, inadequate, improper, unsuitable and defective packing is a source of much concern to an underwriter, because it can turn what might have a small loss into large one. To consider packing as adequate, the following factors need to be present:

1. Strength of packing material
2. Weight of package unit

• Handling mobility of the packaged units

1. Inherent qualities of the commodities or product packed
2. Hazards involved in a transit

Nature of Cargo Import Duty Insurance

In marine insurance contract, custom duty is distinguishable from thee value of goods because,

• Although payment is irrevocable and levies regardless of the physical state of the goods, (except in extreme circumstances) it is usually accrued only on arrival into overseas customs
• It is thereby largely irrelevant during the principal stage of transit, i.e., the overseas voyage, and entirely so in the event of total loss before arrival or for the purposes of adjustment of general average. Conversely, once paid, the amount of duty becomes locked into commercial values of goods throughout the balance of transit from customs to final warehouse.
• Clearly, therefore, custom duty is far less exposed to loss than the value of the underlying goods (which is constantly at risk throughout the entire duration of insurance) and this factor merits some compensation in the premium charged.

Institute Cargo Clauses

For the purpose of underwriting cargo business, it is necessary to be familiar with the coverage provided by the the institute cargo clauses, therefore the salient features of the institute cargo clauses need to be taken into account; To be explained later