Insurance is needed to maintain the financial integrity of your life and business. 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 water-going vessels, ships, or submarines, etc.
An extended branch of marine insurance covering the transportation activities through the seas also covers transportation through the land. This is known as inland transit insurance.
You will need to use any of the following three types if insurance if you are in the respective businesses of:
To figure whether you should buy a marine policy, see Who can Purchase marine insurance?
Case on the Need of Marine Insurance
Since 2011, KRS Kidswear Ltd. has been transporting ready-made kids apparel to Chennai via sea route. The company always sends goods in smaller consignments 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.
Upon reaching the destination, the buyer found out that goods worth Rs. 4 lakhs were wet 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 mishap.
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.
To know the exclusions in marine insurance, see What is not covered under marine insurance?
The policy will help the firm in covering losses along with 10% profit for the damaged goods.
Turnover and Effect of Marine Insurance
Whiz Kid Fashions has a turnover of approximately Rs. 5 crore annually, which has been growing at a rate of 20% each year. Whiz Kid Fashions manufactures and sells toys which 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.
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 the goods are lost in transit, the firm loses not only the cost of manufacturing but also the profit margin.
Whiz Kid realised this when one of its consignments valued at Rs. 130,000 was lost due to floods on the way to one of the customers in Bangladesh.
The customer had to be provided with a replacement, incurring a double cost for Whiz Kid.
The transporter had, however, requested the company for insuring the goods and given competitive quotes for the transport with freight insurance, but Whiz Kid has sat on the proposal due to cost reasons.
The incident had impacted the net income of the firm by 5% in the year of the incident. A high ratio, for a budding toymaker. A marine cargo insurance, however, would not only save Whiz Kid from such increase in cost but also would’ve provided up to 20% in profit coverage.
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