Insurance is needed to maintain the financial integrity of your life and business. Hence, we need a marine insurance policy. Marine insurance, by this definition, will be needed if the risks you seek cover from are related to marine activities, such as:
- Transportation through oceans and waterways
- The building, maintaining or operating of water-going vessels, ships, submarines, etc.
You will need to use any of the following three types of marine insurance if you are in the respective businesses:
To figure out whether you should buy a marine policy, see Who can Purchase marine insurance?
Case on the Need for Marine Insurance
Since 2011, KRS Kidswear Ltd. has been transporting ready-made kids’ apparel to Chennai via the sea route. The company always sends goods in smaller consignments as well, to lower the risk of loss in transportation. Last month, during the transportation, heavy rainfall disrupted the journey and delayed the consignment by extra three days.
Moreover, upon reaching the destination, the buyer found out wet goods worth Rs. 4 lakhs and returned them to KRS for replacement. Though KRS had a strategy in avoiding losses, they had not been prepared for incurring one.
They anyways provided a replacement for the damaged material out of pocket. KRS had not insured their cargo for such mishaps.
However, after this jolt, the firm is mulling the insurance for all their consignments. Fortunately, the insurers offer insurance just for their needs of regular medium-sized consignments.
The policy will help the firm in covering losses along with a 10% profit for the damaged goods.
Turnover and Effect of Marine Insurance
Whiz Kid Fashions has a turnover of approximately Rs. 5 crores annually, which has been growing at a rate of 20% each year. Whiz Kid Fashions manufactures and sells toys that are intellectually stimulating for kids and are very popular not only among the new age parents but also used by schools throughout the country and outside.
In fact, All of the goods are sent from the factory located in Gandhi Industrial Complex in Bihar to the various storehouses, retailers, and large buyers.
The size of the consignments can range from Rs. 50,000 to Rs. 300,000 depending on the quantity. The owner so far had not been using insurance to cover the consignments as most of the consignments are paid in advance, and the courier employed by the company is one of the best.
The products generally have an average profit margin of 35%. Therefore, if it loses the goods in transit, the firm loses not only the cost of manufacturing but also the profit margin.
Whiz Kid realized this when it lost one of its consignments valued at Rs. 130,000 due to floods on the way to one of the customers in Bangladesh.
However, provides the customer with a replacement, incurring a double cost for Whiz Kid.
The transporter had, however, requested the company for insuring the goods and give competitive quotes for the transport with freight insurance, but Whiz Kid has sat on the proposal due to cost reasons.
Therefore, the incident impacted the net income of the firm by 5% in the year of the incident. A high ratio, for a budding toymaker. Marine cargo insurance, however, would not only save Whiz Kid from such an increase in cost but also would’ve provided up to 20% in profit coverage.