The traditional marine insurance policy used to cover for only the market value of the ship commonly referred to as ‘Shipowner’s Interest’. However, apart from the market value of the vessel, there are other additional costs to be covered like sundries for the ship replacement, buying an equivalent new ship, such as office expenses or brokerage.
The insurance industry recognized these additional costs. It realised that an insured has an additional insurable interest which goes beyond the vessel’s market value. Also, this insurable interest is in excess of the sum insured under the hull and machinery insurance.
The increased value clause in marine inland transit insurance acts as an additional cover for the insured. This cover ensures an additional 20% to 25% of the insured value of the vessel in case of total loss.
The insured has an additional insurable interest in marine inland transit insurance, which is in excess of:
- The vessel’s market value
- Hull insurance
The Increased Value clause in inland transit insurance makes it possible to replace the vessel and minimize economic consequences of the total loss.
In marine inland transit insurance, the likelihood of a total loss is relatively low as compared to other perils and risks. Hence some insurers started offering a lower premium level in the increased value insurance. Shipowners started using the increased value cover to also cover for the ship’s market value. They realized they could save on the premium costs. As a result, the vessel became under-insured on the hull. Hence as an outcome hull insurers reduced the compensation for liabilities, salvage, and general average claims.
To counter this reduction in hull cover, the increased value clause in marine transit insurance covers the ‘excess liabilities’. This excess liability is the proportion reduced by the insurer due to the under insurance in the hull category.
Case Study: 1
Since 2000, K.P Electronics has been in the business of exporting electronic circuit items within India. The majority of its export took place through waterways. K.P Electronics used the ship of Lumar Cargo for transportation via waterways.
One day, K.P electronics got a huge consignment to export its electronic items to Kerala. During the transport, the ship got caught in a heavy storm. The storm not only damaged the electronic items loaded on the ship but also devastated the entire ship.
As Lumar Cargo had a marine inland transit insurance policy. The company approached its insurer who settled the claim after analyzing the entire situation. Also, marine inland transit insurance policy had an increased value clause attached to it. As a result of this clause Lumar Cargo also availed additional 20% of the insured value of the vessel. The additional increased value helped Lumar Cargo to cover the sundries for the ship replacement.
Additional Read: Why do You Need Marine Insurance?
Case Study: 2
H.L Constructions based in Goa, exported a consignment of construction items to Orissa with the help of ‘Marina Transporters’. The consignment had to reach Orissa within 4 days of transit. However, the ship caught fire on its way. Most of the items on the ship got damaged. The crew members could not control the fire. They eventually deserted the ship and were rescued with the help of a rescue boat. The owner of the ship (Marina Transporters) immediately informed the insurance company about the incident.
A surveyor was sent who found out that the ship was totally damaged and it could not be restored. The fire was caused due to a short circuit in the vessel’s engine. The surveyor helped the owners of the ship to claim the marine inland transit insurance. The increased value clause in the insurance policy helped them to achieve additional 20% of the insured value.