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How is the Premium of Marine Insurance Policy Decided?

  • Author :
  • TATA AIG Team
  • Published on :
  • 28/12/2023
  • 2 min read

Businesses that are involved in the import and export of goods prefer to invest in marine or transit insurance policies. The purpose of marine insurance is to provide financial protection to businesses by insuring their goods in case of any unforeseen or unexpected event during the transit.

However, most businesses who buy marine insurance policies do not know how the premium is calculated. There are various intricacies associated with the calculation of marine insurance premiums. Understanding the premium calculation can help you understand your policy better and make more aware purchase decisions.

In this blogpost, we will delve deep into the marine insurance premium calculation.

What is Marine Insurance Premium?

There are different marine insurance policies available, such as hull insurance, cargo insurance policy, freight insurance policy and more. And based on the coverage and policy type, every insurance policy comes with a premium amount.

A premium amount or cost is the payment paid by a business to the insurance provider for using the policy. However, the premium of the policy is decided by the insurance provider by considering various factors such as the value of goods, type of vessel, nature of goods and more.

Due to this, the premium of the marine insurance policy increases or decreases. Policyholders can use marine insurance premium calculators to check the policy premium based on coverage and type.

Factors that Influence Marine Insurance Premium Calculation

Some of the well-known factors that influence marine insurance premium calculation are discussed in detail here:

**Construction and Type of Vessel - One of the significant factors in determining the marine insurance premium is the type and construction of the vessel in which the material is transported. The insurance provider gathers all the information about vessels, such as material used for its construction, structural strength, adaptability, age of the vessel, etc. It helps in understanding that the vessel is up to date to stand the harsh weather or distressful situation.

Natural Forces- Another factor that affects the marine insurance premium calculation is the natural forces such as earthquakes, cyclones, floods, etc. These are natural disasters which can happen anytime without any prior warning and cause damage to goods.

However, with time, we now have weather forecasting technologies that analyse the patterns and seasons where such incidents happen a lot. The insurance provider also considered this factor while deciding the policy premium.

Nationality of Vessel- Further, another deciding parameter for marine insurance premium calculation is the nationality of the vessel. It means to which country the vessel belongs. It is to analyse the skills of the vehicle's crew members and staff. The countries that depend highly on ocean or other trade generally have a very skilled staff.

Nature of Goods- Besides this, the nature of goods is also an essential factor while doing the marine insurance premium calculation. A vehicle with high-value goods or a high damage chance to goods generally has a high premium.

Term of Policy- Lastly, the premium of a marine insurance policy is also calculated based on the terms and conditions of the policy. Every policy has certain conditions, inclusions and exclusions which either can increase or decrease the policy price. It varies from policy to policy.

How is the Calculation of Marine Insurance Premium Carried Out?

Now comes the part about how the calculation of marine insurance premiums is carried out. The calculation of marine insurance premiums is done in the following steps.

The very first thing an insurance provider does is determine the cost of freight or shipment value.

The next thing they include is the escalation cost, which can vary from insurance provider to provider.

The total value is then multiplied by the insurance premium quoted by the insurance provider. The premium quoted by the insurance provider depends on the type of marine insurance plan and the inclusion included.

The final value obtained is the decided premium that the customer or policy holder has to pay.

Compensation in Marine Insurance

Marine insurance offers compensation against various risks such as loss of vessel, third-party liability, cargo damage, and more based on the policy conditions.

However, to get the compensation, policyholders need to file the claim timely. The claim procedure for marine insurance policy involves the following steps which are listed below:

The very first step of the policyholder is to notify the insurance company about the incident. Every insurance company has a time window for filing a request, which can be some hours to a few days.

In this notification, the policyholder needs to provide all the information about the incident, such as when the incident happened, loss due to the incident, etc.

After getting an incident request, the insurance company will send the surveyor to the site. The job of the surveyor is to verify the cause of the incident.

They also analyse if any of the exclusion or limitation is involved in causing the incident. Based on their survey, they draft a report.

Then, the next step is for the policyholder to submit all the necessary documents to make a claim, such as an insurance certificate, invoices, etc. These documents are necessary for the insurance company to do the written paperwork for the insurance claim request.

Lastly, the insurance provider will take time to review the application and documents provided, which also include the surveyor report. Based on that, either he will approve the claim request or reject it.

If the insurance company approves the request, they will offer the settlement amount to the policyholder based on the policy condition. Further, if the request is declined due to paperwork or any other reason, then the policyholder can go with arbitration.

Conclusion

In this uncertain world, where accidents can happen anytime, a marine insurance policy offers security to the business. However, before buying the plan business needs to understand various factors that help in determining the policy premium.

Instead of just going with the plan that has a low premium, businesses need to consider the cargo insurance policy that fulfils their requirement. Tata AIG offers various customisable marine insurance plans at affordable premiums.

FAQS

How is the premium of marine insurance decided?

The premium of marine insurance is decided by considering various factors such as vehicle type, natural forces, nature of goods and more.

Why choose the marine insurance policy?

The primary purpose of choosing the marine insurance policy is to protect goods from various natural or man-made risks during transit.

What are the documents required at the time of filing the marine insurance claim?

Some of the documents that need to be submitted by the policyholder are the claim form, insurance certificate, survey report, packaging list, shipping details and more.

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Disclaimer / TnC

Your policy is subjected to terms and conditions & inclusions and exclusions mentioned in your policy wording. Please go through the documents carefully.

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