Let's talk about marine insurance, the most dynamic and colorful segment of the insurance industry, this week and for the next few weeks. The world of marine insurance is an integral part of trade with its rich and sophisticated product range.
Global Marine Insurance reached a premium production of 31.4 Billion USD at the end of 2021. The breakdown is 30% cargo, 30% hull/machinery (H&M), 20% P&I and liability, and 20% off-shore energy insurance.
The share of the related industries in Turkey's premium production of TL 105 billion as of the end of 2021 is around 3.5%. Of the 136 million policies issued in 2021, the total number of marine and hull insurance policies is 1.4 million. On a sales channel basis, 55% of cargo policies were issued by agencies and 31% by brokers.
First, let's enter the rich world of marine insurance with Cargo insurance.
Very simply defined, cargo insurance covers the damage caused by the risk incurred during the transportation of goods from one place to another by any vehicle. The policy can be issued with Full Loss, Narrow (C) and Broad (A) coverage. The form of sale is important as sales contracts are the basis for the ownership of the interest and who will carry out the insurance.
The parties in a transportation operation can be most briefly stated as buyer, seller, carrier, warehouseman. However, depending on the steps of the operation, the type of goods transported, the transportation cost, dimensions and the vehicle to be used in transportation, many parties with different expertise such as inspection, sub-carrier, customs, shipowner, port operator, other insurers, logistics companies are involved in the process. When the documents to be issued according to the means of transport, the transportation route, international trade laws, sea, air and land transportation conventions, and the documents to be issued are added, we meet the complex world of Transport Insurance, which may seem quite simple.
The general terms and conditions of transportation insurance, which contain old terminology, can be challenging for newcomers. I drop the general terms and conditions here (https://www.tsb.org.tr/media/attachments/Emtea_Nakliyat_Sigortası_Genel_Sartları.pdf) Institute clauses are used in Türkiye as in the world.
Brief Summary: Scope and Practices
1- Marine Insurance: Provides coverage against damages arising from hazards that may be encountered during the transportation of all kinds of cargo being transported from one place to another by land, sea, air and rail, within the limits specified in the General and Special Conditions.
2- Scope of coverage
Total Loss - covers only the total loss of the transported commodity due to the total sinking and destruction of the ship carrying out the transportation.
Truck Clause: This clause provides coverage for damage to trucks or trailers as a result of collision, collision, overturning, burning of trucks or trailers with any fixed or moving object on the highway and as a result of certain natural hazards (lightning, flood, stream overflow, avalanche, earth and mountain landslide, bridge collapse and road collapse) damage to the transported commodity is insured
Narrow Coverage (C) - ICC “C” In addition to the risk of complete loss and total damage to the goods, partial damages due to accidents (collision, collision, overturning, fire) caused by the carrying vehicle are also covered.
Broad Coverage (A) - Generally known as 'All Risks'. For this coverage, all risks other than the exceptions specified in the special conditions (Institute Cargo Clauses -A) are covered (such as loading, unloading, transshipment, theft).
3- General Exceptions
-Not transported by appropriate vehicle
- Inadequate/inappropriate packaging
- Incorrect Loading
- Illegal situations (such as prohibited and clandestine trade, smuggling)
- Loss, damage or expense, direct or indirect, caused by or resulting from the use of any weapon or device involving atomic or nuclear fission and/or fusion or other similar reaction or radioactive power or material.
- Loss, damage or expense attributable to the willful misconduct of the Insured,
- Losses arising from the nature of the thing insured (ordinary leakage, ordinary loss of weight or volume, or ordinary wear and tear)
- Loss, damage or expense caused by a latent defect (defect) or quality of the insured property.
- Loss, damage and expense caused by delay
- Loss, damage or expense caused by the loss of solvency or inability of owners, managers, charterers or operators to meet their financial obligations.
- War and Strike (may be included with additional premium)
4- Policy Types
Flotan Policy - A type of policy that covers the indefinite period between the commodity to be transported, the vehicle information and the date of loading before the date is finalized, especially in letter of credit trade transactions. Flotan Policy is a temporary policy made with the existing information and documents, and after the vehicle information and loading date are finalized, it falls under the scope of the final insurance policy.
Final - Expeditionary Policy (A policy issued for each shipment with complete information on shipment date, voyage, value and vehicle data, valid from the beginning to the end of the shipment)
Commodity Subscription Policy (A framework contract agreed for all shipments of an insured for all shipments to be carried out during the 1-year insurance period, in such a way that a special policy will be issued for each shipment and a premium will be paid per policy)
Commodity Subscription Block Policy (A framework contract in which the terms and conditions are determined for all transportation of an insured during the 1-year insurance period and the premium for all of them is paid in advance)
5- Incoterms- is a program implemented by the International Chamber of Commerce (ICC) to standardize the terms used in international trade. It defines the responsibilities of the buyer and seller, such as the processes of the exchange, freight charges, customs clearance and who pays for insurance.
The transportation of goods is indeed a complex operation. Each step of transportation, from the choice of supplier to the sales contract, from the type of goods to the route, requires careful planning.
First of all, basic steps such as transportation and packaging standards according to the type of commodity to be transported, type of transportation (sea, air, land), selection of appropriate means of transport and carrier are completed. In operations involving more than one type of transportation, which we call multimodal, the processes are more complex (naturally, the parties involved in the process are also more). The transportation of goods of large value or size requires different setup and additional measures.
Depending on the mode of transportation, the characteristics of the vehicle, routes, sanctions and embargoes, the quality of risk management of subcontractors, loading, transfer and unloading points, waiting times, inspections and insurance protection of the parties involved in the process affect the coverage and pricing in transportation insurance.
Before taking out marine insurance, it is important to know all the steps of the transportation process and what information and documents all parties involved should have in case of any damage. Clauses, precautions and documents vary depending on the type of transportation. The responsibilities of the insured and its suppliers in line with the principle of maximum good faith, the documents issued, the measures taken and risk management are critical to determine at which stage the damage occurred during the transportation process. Failure to do so may result in serious problems even in the case of a small amount of damage.
Policyholders with intensive commercial activities pay close attention to details such as coverage, special conditions, exemptions, precautions and inspections in transportation insurances. It is very important that operations are fast and error-free. To this end, insurance companies have been making technological investments in recent years to ensure fast service and error-free policy issuance.
Logistics companies, carrying the products of producers, manufacturers and exporters safely and quickly to their desired addresses in the country or to distant countries, are among the key players of commercial life. In addition to land, sea, air and rail transportation, the risks of the logistics sector, which provides packaging, storage and delivery processes as a whole, are also insured in the Marine market.
Considering the technical results of transportation insurance, where all parties are in frequent communication, we observe that it is one of the segments with high profitability. Recourse is one of the most important criteria in transportation insurance. The insurance industry has created an important fund by providing various insurance coverage for damages that may arise from the carrier allowing recourse (P&I, CMR, FFL, Warehouse Liability, etc.)
Marine insurances provide attractive advantages to intermediaries with a satisfactory commission rate, and to the insured with practices such as no claims or low claims premium refund at the end of the period according to the premium.
Next week, let's continue with the risks of the logistics sector and the things to pay attention to Cargo Insurance according to the type of transportation (Land, Air, Sea, Railroad).
I wish everyone the best of luck in their business.
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