Insurance is an important protection for any business activity. Marine insurance is the oldest form of insurance that is essential to boost trade which ultimately leads to economic growth. Any business that is engaged in trade including the import and export of goods is exposed to a variety of risks that can result in loss or damage of valuables while being transported by rail, road, air or sea. With globalisation and increases in trade, the demand for marine insurance is also increasing among businesses to maintain their financial integrity. The following reasons make marine insurance important for businesses everywhere.
Importance of Marine Insurance:
- High-risk exposure: When it comes to trade, a business needs to rely on transportation. Transport is an extremely risky process that faces exposure to various named and unnamed perils. Businesses need to take steps cautiously from packing the goods to be transported, to choosing reliable logistics methods for smooth transits. However, despite all safety measures taken accidents can still happen resulting in a loss or damage to shipment or cargo. In order to manage these transport risks, it’s important to avail marine insurance. Marine insurance is available in various forms such as marine transit insurance, hull insurance and inland transit insurance etc to cover both domestic and international trades.
- The possibility of exorbitant losses from transits: Businesses transport shipment in bulk. As carriers have limited liability, loss or damage to high-value shipments can put a business under severe financial crisis. Marine insurance provides comprehensive coverage by protecting your shipment from various perils such as theft and piracy, fire, explosion, natural disasters like storms, hurricanes, earthquakes, cyclones, collisions, derailments of land conveyance, sinking of ships apart from covering various expenses.
Let’s understand the importance of marine insurance with an example.
XYZ Ltd is into the apparels business and is based in Chennai. They have been exporting womens’ silk sarees to other countries via sea. The company sends each consignment in tranches. Last August, due to cyclones a consignment worth Rs. 15 lakhs sent by ship was lost. In this case, XYZ Ltd was not well prepared for this unexpected loss. They had to send out a new consignment to the buyer. XYZ Ltd might not have incurred such a huge loss if they had purchased marine insurance.
Be it international or domestic trade, marine insurance is an essential tool for businesses to manage all their risks associated with trade starting from the place of loading of the shipment to its reach destination.