The premium cost will increase or decrease in accordance to the estimates made by the insurance company. The premium is estimated on the basis of the following parameters:
- Nature of the goods
- Value of the goods
- Inherent risks your products may possess
- Route, construction, and type of the vessel
- Destination to which your goods will travel
- Any political risk, strike, riots, and civil commotion that could hamper the delivery of goods
- Any inherent risk that your products may possess
- Historical Data of incidents with the insured and overall
Some of the 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 the vessel with respect to its owner, material used in construction, structural strength and adaptability to carry different types of cargo and its age.
- Nationality of the vessel: It is essential for the insurer to know because it discloses the dependency of countries upon the ocean trade. The nationality of the vessel shows the skillfulness of the masters and crew. Also, the 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, or some may cover the partial loss. On the basis of the coverage, the premium 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 in India & abroad. The company manufactures LED, home theatre systems, LCD and LED monitors. Last year, the company got a big contract of exporting electronic items, including home theatre and LED to Malaysia.
As it was the consignment worth $200 million via sea, the company decided to go for marine insurance. The insurer emphasized on a comprehensive insurance policy and considered various factors like nature and value of the goods, the distance to be covered and inherent risks for computing 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 know their quality.
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 final premium rates.
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