Marine insurance premium cost increases or decreases in accordance with the estimates made by the insurance company. The premium is estimated on the basis of the following parameters:
- The nature of the goods
- The value of the goods
- The inherent risks that your products may possess
- The route, construction, and type of vessel
- The destination to which your goods will travel
- Any political risk, strike, riots, or civil commotion that could hamper the delivery of goods
- Historical Data of incidents with the insured and overall
Some of these parameters are explained below:
- Natural forces: While some natural disasters are permanent, some are seasonal. Some ports are also known for insufficient depth, absence of good anchorage and lack of protection against tides.
- Construction and type of the vessel: The quality and fitness of the vessel play an important role. The underwriter would be keen to know about the vessel with respect to its owner, the material used in construction, the structural strength and its adaptability to carry different types of cargo, its age etc.
- Nationality of the vessel: It is essential for the insurer to know this because it discloses the dependency that certain countries have on ocean trade. The nationality of the vessel also can show the skillfulness of the master and crew. Also, the marine insurance premium rates depend on the age of the vessel, risks covered and transit.
- Policy conditions: Various clauses may be added to limit or increase the insurer’s liability. Some policies may cover total loss, others may cover partial loss. On the basis of the coverage, the premium of policy will be decided.
Case on Marine Insurance Premium
Established in 2011, M.S Electronics Ltd. is a Pune based electronics company supplying and exporting quality electronics products both in India & to other countries abroad. The company manufactures LED TVs, home theatre systems, and LCD and LED monitors. Last year, the company got a large contract for exporting electronic items, including home theatres and LED TVs to Malaysia.
As it was a consignment worth $200 million to be shipped by sea, the company decided to buy marine insurance. The insurer emphasized on getting a comprehensive insurance policy and took into consideration various factors like the nature and value of the goods, the distance to be covered and the inherent risks, for computing the premium rates. The insurer also asked M.S Electronics Ltd. to furnish details regarding the nationality and type of the vessel. As the company was using two vessels, the underwriter checked both the vessels to get to know their qualities and features.
The underwriter found that one vessel was slightly damaged as compared to the other which was new. The insurer also considered the structural strength of vessels to compute the final marine insurance premium rates.