It is important to deliberate on the premium of marine insurance policy because it directly impacts the cost of protecting goods during transportation. A lower premium might seem attractive initially, but it can lead to inadequate coverage and potential financial loss in the event of damage or loss of goods during transit. On the other hand, a higher premium can provide better coverage and minimize the financial risk associated with marine transportation. Therefore, it is crucial to understand how marine insurance premiums are calculated. It is crucial to understand the policy terms and conditions, evaluate the level of coverage needed, and compare marine insurance premium calculation and the premiums offered by different insurance companies before making a decision.
Marine insurance premiums either increases or decreases based on the risk estimates made by the insurance provider. The major parameters that are involved in the determination of the premium of the marine insurance policy are listed below.
A. Natural forces
Natural forces or natural calamities like floods, high tides, etc. are permanent and unchanging. However, some are seasonal as well and occur or are highlighted in particular seasons. Or there are natural features for instance there are ports that do not have sufficient depth, do not have good anchorage, and even lack protection from tides. This has a huge impact on the marine insurance premium rate.
B. The construction and type of vessel
The construction, quality, and fitness of the vessel or vessels involved are of great importance while determining marine insurance premiums. The insurance provider shows interest in knowing about the ownership, material used in the construction of the vessel, its structural strength, adaptability in carrying different types of cargo, and its age.
C. Nationality of the vessel
Insurance providers would ask to know about the nationality of the vessel as this would help in disclosing its dependency on countries for ocean trade. The nationality of the vessel would help in knowing about the skills of the crew and its masters. Moreover, the premium rates of the vessel would also depend on the age of the vessel and cover the risks.
D. Terms and conditions of the policy
Different clauses add to either increase or limit the liabilities of the insurance provider. Some policies might cover constructive total loss in marine insurance whereas some might cover partial losses. The premium of the policy depends on the marine insurance coverage.
In addition to these major factors, there are others like carrying the nature of the goods and their value, the destination to which the goods are traveling, any inherent risks the products might face, etc. which also determine the marine insurance policy premium.
How to do Marine insurance premium calculation?
The premium for marine insurance can be calculated by following the below-mentioned steps.
- First, is the determination of the shipment value or the cost of freight.
- Then add 10% for the escalation costs.
- The total value obtained and multiplied by the marine insurance percentage, quoted by the insurance provider.
- The final value obtained is thus, the amount to be payable as a premium.
In an open marine insurance policy, the insurance provider can charge the premium at regular intervals depending upon the requirements of the insured. The rate % applied to the sum insured for the calculation of premium depends upon factors like the susceptibility of the goods to any damage or theft, the quality of packaging, the claim history, etc.
Hence, the premium of marine insurance varies from case to case and is not calculated on a universal basis. It is mainly influenced by factors like applicable freight incurred for transportation, the route being considered for the voyage, the destination of the goods, and other issues that can influence the delivery of goods like riots, commotion, or political risks.
FAQ
Q) How is the premium for marine insurance calculated?
A) The premium for marine insurance is calculated based on several factors such as the value of the cargo, the type of vessel, the route taken, the level of coverage required, and the risk factors involved. Insurers use complex algorithms and historical data to determine the premium amount.
Q) What are some common factors that can affect the premium for marine insurance?
A) Common factors that can affect the premium for marine insurance include the nature of the cargo (e.g., hazardous materials), the age and condition of the vessel, the experience of the crew, the route’s risk level (e.g., piracy-prone areas), the coverage limits, and the deductible amount chosen by the policyholder.
Q) Can I reduce the premium for marine insurance?
A) Yes, there are several ways to potentially reduce the premium for marine insurance. These include implementing safety measures on board the vessel, providing crew training, using secure and efficient packaging for the cargo, choosing a higher deductible amount, and selecting a less risky route whenever possible. Additionally, maintaining a good claims history and working with an experienced marine insurance broker can also help in negotiating lower premiums.
Q) What are the different types of marine insurance policies available?
A) There are several types of marine insurance policies, including hull insurance, cargo insurance, liability insurance, and freight insurance. Hull insurance covers the ship itself, while cargo insurance protects the goods being transported. Liability insurance covers legal liabilities arising from the operation of the ship, and freight insurance covers the cost of lost or damaged freight.
Q) How do I choose the right type of marine insurance policy for my needs?
A) The right type of marine insurance policy will depend on various factors such as the type of goods being transported, the value of the cargo, the risks involved in the shipping route, and the specific needs of the shipowner or cargo owner. It is recommended to consult with an experienced marine insurance broker who can assess your individual needs and help you choose the most suitable policy.
About The Author
Simran
MBA Insurance and Risk
With extensive experience in the insurance industry, Simran is a seasoned writer specializing in articles on marine insurance for SecureNow. Drawing from 5 years of expertise in the field, she possesses a comprehensive understanding of the complexities and nuances of marine insurance policies. Her articles offer valuable insights into various aspects of marine insurance, including cargo protection, hull insurance, and liability coverage for marine-related risks. Renowned for their insightful analysis and informative content, Simran is committed to providing readers with actionable information that helps them navigate the intricacies of marine insurance with confidence.
