How to Calculate Marine Insurance Premium?

Marine insurance offers coverage against maritime transport risks, such as damage or loss to ships, cargo, and other vessels. In India, the Marine Insurance Act of 1963 governs this type of insurance, while the Insurance Regulatory and Development Authority of India (IRDAI) regulates it.

Insurance providers broadly classify marine insurance in India into cargo insurance and hull insurance. The former protects the policyholder against damage or loss to goods during transportation by air, sea, or land, while the latter takes care of the physical damage to the vessel or ship, including equipment, machinery, and other parts.

Marine cargo insurance offers protection against risks like theft, fire, collision, piracy, and weather-related challenges like hurricanes, storms, and other natural calamities. The insurance policy also offers additional liability coverage arising from injury to crew members or damage to third-party property.

Marine insurance is a vital requirement for businesses engaged in transportation and international trade. It protects transporters and those engaged in trade from financial damages caused by unforeseen events that may arise during transit, ensuring their financial security and peace of mind.

It is essential to buy insurance coverage for the different assets and properties you own. Similarly, it is vital to get marine cargo insurance to secure losses to the cargo and goods being transported on ships and other vessels.

In marine transportation, the stakes are higher due to the involvement of many factors, like the risk of losing the lives of seafarers due to accidents, the perils of environmental damage because of oil pollution, and the potential loss of valuable cargo or expensive modes of transportation.

Marine insurance policies provide coverage for different risks and liabilities related to maritime activities. Insurance companies offer various types of marine insurance policies, each customised to fulfil specific needs and circumstances.

The different types of marine insurance based on coverage are:

Marine cargo insurance

Hull insurance

Damage liability insurance

Damaged or lost freight insurance

Marine insurance is also categorised based on the structure of the plan.

Open policy

Voyage policy

Time policy

Cargo valued policy

Port risk policy

Wager policy

Many factors influence marine insurance premiums. While you might get attracted to a policy with a lower premium, you must be aware of the coverage it offers. Most low-priced insurance policies offer inadequate coverage, leading to more losses than savings on premiums in case of loss or damage of goods during transit. The premium also varies depending on the inclusions of the policy.

Learning how to calculate marine insurance premiums requires understanding the factors that affect the premium. Let us delve into each one of them.

Type of Coverage

There will be a significant impact on premiums based on the specific type of marine insurance coverage you choose. This is because each type of marine insurance policy covers different risks and liabilities.

The insurance policy types from which you can choose include cargo insurance, hull insurance, liability insurance, freight insurance, and any other specialised marine insurance policies.

Natural Calamities

No one can predict the potential risk of natural forces like earthquakes, floods, tsunamis, cyclones, etc. However, it is possible to identify specific regions and seasons where the risk is high.

For example, some ports may not have adequate infrastructure to control tides, making them more prone to damage. The marine insurance premium rates increase if the area is likely to get impacted severely by natural disasters.

Type and Construction of the Vessel

The type, construction, and age of the vessel can influence the premium. Newer vessels are stronger, which means the severity of damage and financial losses are lesser. On the other hand, older vessels may require frequent maintenance and replacement. The premium for older vessels will be higher, while the premium for newer vessels will be more affordable.

An insurance company will ask for details associated with the vessel. These include the vessel’s structural strength, construction material, ownership, age, and ability to carry different types of cargo.

Vessel’s Nationality

The vessel’s nationality is another detail the insurance company will consider before computing marine insurance premiums. This is because the nationality provides an insight into the expertise of the crew and its masters.

An experienced crew is less likely to cause damage to the vessel or cargo, resulting in a lower premium. Conversely, an amateur crew can make more mistakes, thus requiring a wider scope of coverage at a higher premium.

Shipping Route

The vessel’s route and the geographical area it will operate in have an impact on the premium. Areas under high risk of war or piracy will attract higher premiums.

Nature and Value of Goods

The nature and value of goods being transported by sea play a vital role in evaluating the premium amount. The premium in marine insurance is likely to go up if the value of the goods is high or they are prone to getting damaged.

These include goods like glass, food items, etc. Similarly, the insurance premium reduces when the value of goods is low, and the chances of damage are also lower.

Policy’s Terms and Conditions

Another factor influencing the marine insurance premium rate is the insurance policy’s terms and conditions. The inclusions and exclusions, to be precise, affect the premium. For instance, if your policy offers protection against complete losses, the premium is higher, whereas if the policy covers partial losses only, the premium is lower. A particular policy’s premium is determined by the scope of coverage it offers.

Previous Loss History

The premium can also fluctuate based on the loss history of the insured party. The premium will increase if the insured has made significant claims frequently.

The marine insurance premium is an essential aspect of your decision to purchase a particular marine insurance policy. As mentioned earlier, several factors influence the coverage premium in marine insurance, such as the type of coverage, the insured value, the vessel’s circumstances, etc.

While you can calculate the insurance premium manually by multiplying the insured value with the premium rate, it is advisable to use the online insurance premium calculator. The premium calculator is a valuable tool offered by most insurance companies. Enter your specific details into the calculator, and your insurance premium will be computed within minutes.

If the premium fits your budget, you can continue with the purchase. But if the premium does not suit your budget, you can make alterations to the type of coverage, the additions, or the plan’s structure to bring the premium’s value within your budget.

As we have seen, marine insurance is an essential expense for marine transport and international trade businesses. It helps to secure losses on the cargo and goods transported via ships and other modes of water transport. Before purchasing marine cargo insurance, you must understand the policy terms and conditions, analyse the required coverage level, and compare the premiums different insurance companies offer.

Tata AIG provides marine insurance plans with low-cost premiums with features like international trade, prompt claim settlement, compliance with regulations, and more.

The premium for marine insurance increases or decreases depending on the risk estimates insurance companies make. The other parameters considered to calculate marine insurance premiums are the vessel’s type, construction, and nationality, the value and nature of goods, natural risks related to the transit locations, and the policy’s terms and conditions.

Who needs to buy marine insurance?

Marine insurance is critical for ship owners, freight forwarders, shipbuilders and repairers, port authorities and terminal operators, and marine contractors. It is also essential for businesses or individuals shipping goods overseas and charterers renting ships.

What are the advantages of buying a marine insurance policy?

There are plenty of benefits of marine insurance. Some noteworthy advantages include protection against financial losses, flexible coverage, prompt claims settlement, international coverage, regulation compliance, and peace of mind.

Which factors affect marine insurance premium rates?

The most prominent factors influencing the premium in marine insurance are the value and nature of the goods, the vessel’s nationality, the type and construction of the vessel, natural risks associated with the transit locations, and the policy terms and conditions.