Types of Insurance - General Insurance Products Marine Insurance

 The MAR Policy; Marine Hull, Institute Time Clauses; Cargo Insurance, Institute Cargo Clauses, ICC - A, B, C, Inland and Air Cargo, Single Transit Policy, Open Policy, Open Cover

The General Insurance product portfolio is so large and complex that to make a comprehensive statement of all the features and nuances, of each product and its variants, is beyond the scope of this book. Here we shall confine ourselves, reluctantly, to a brief consideration of the main products and their significant features. The aim is to create a sense of the ‘risk protection' offered by the product. Inevitably, some significant information, some important detail or the other, has been omitted, but a more comprehensive assessment must be left for another place and time.

The Insurance Act of 1938 forms the bedrock of Insurance Business in India. It provides the legal foundation and lays down the overall structure of the Insurance ‘ecosystem. Under the Act, General Insurance Business is classified into three types, ‘Fire,' 'Marine' and 'Miscellaneous,'20 and this classification has continued unchanged since then. Each of the three is considered a distinct 'class' of business.

Fire and Marine both soon developed homogenous sub-categories which came to be recognized as distinct ‘lines' of business. With the passage of time, the number of Products under the 'Miscellaneous' category, and the volume of business, also grew so much that in practice distinct sub-categories have emerged and are recognized as valid classifications though they may find no mention in the Insurance Act. The most significant products, grouped by 'line' and 'class' of business have been presented in Tabular form below. Care has been taken to exclude brand specific product variants and include only generic products with the usage of accepted nomenclature.

Table 3: General Insurance - Products

Class Sub-class (Line) Product Marine K

Policy, Aviation Personal Accident Policy, Loss of

Licence Policy (Retail Segment) Motor Liability Only Policy Own Damage Policy Motor Trade Policy Health Hospitalization Policy Critical illness Policy Personal Accident Individual & Group Policy Travel Overseas Travel Policy Package Travel Single-Trip and Multi-Trip Policy Homeowner's Package Policy Shopkeeper's Package Policy Others - Office, Hospital, SME (Government Segment) Rural Cattle, Livestock, Fisheries, Hut, other Rural Assets Mass Health and Personal Accident Rashtra Swasthya Bima Yojna (RSBY) Pradhan Mantri Suraksha Bima Yojna (PMSBY)

Marine Insurance

Marine insurance has been described in the Insurance Act as contracts of insurance covering vessels of all description, the cargoes which are transported, and the freights on such cargo.

However, as it grew over time, , Marine insurance business evolved into two universally recognized categories called

1. 'Marine Hull which is the business of insurance of ships of all types, whether steam ships or sailing vessels, Ocean-going vessels or those plying on inland waterways, Passenger or Cargo Ships, Liners or Tramps or Chartered vessels, Petroleum Tankers or other specialized vessels for 'containerized' cargo. There is, also, no limitation on the size or 'tonnage' of the vessel.

2. 'Marine Cargo' which is for insurance of all types of cargo, from small parcels to large consignments, from 'Household Goods and Personal Effects' to Manufactured Goods, shipments of bulk commodities whether in cargo 'containers' or specially designed 'bulk carriers, petroleum in tankers, etc.

At this point it is important to clarify that all cargo, whether transported over water by ships, over land by trucks, or by airplanes, is classified as Marine Insurance business. However, Marine Hull business is only concerned with the insurance of ships whether cargo vessels or liners. Trucks are insured under Motor insurance or portfolio and the line of business for insurance of all Airplanes, passenger cargo, is called Aviation Hull Insurance,' and both of these form part of the 'Miscellaneous' class of business.

The Marine (MAR) Insurance Policy All contracts of marine insurance, whether for ships, cargo or freight, are made by issuing the Marine Insurance Policy, or MAR Policy as it is popularly referred to. However, this does not mean that the Marine class of business offers only one product to the customer. While the MAR policy form is used to record the details of the Policyholder, the property insured, premium paid and duration of insurance, 'Clauses' are attached to the policy to record the perils covered, contingencies excluded, warranties and conditions applicable. In this way, by combining it with different clauses, one policy form is utilized to provide a variety of products to address customer needs. Marine Hull Insurance – the Institute Time Clauses

Hull insurance policies are mostly issued for a fixed duration, usually of one year. However, in rare cases, Hull policies can also be taken for a specific voyage. The specific terms and conditions of insurance are laid down in the 'Institute Time Clauses, commonly referred to as “ITC - Hulls.” In Industryspeake the term 'Time Policy,' and 'Time Clause,' is used to refer to the insurance of Vessels, while the term 'Voyage' policy is used in association with insurance of Cargo.

Coverage

A typical Hull insurance policy covers damage to the vessel by various perils such as (1) Fire, explosion (2) Earthquake volcanic eruption (4) Lightning (5) Stranding, sinking etc., Collision with other vessels vessels (6) Piracy (7) Contact with aircraft, land conveyance, dockor harbour equipment (8) Crew Negligence (9) General Average Sacrifice. In addition, if the insured vessel collides with any other vessel, the policy covers 75% of the legal liabilities of the policy holder for damage to the other vessel, property on it or General Average settlement related to it. This is the core of the cover provided.

Ship owners invariably take a 'Protection and Indemnity' (P&I) cover for the remaining 25% of their liability that is not covered by the Time Policy. This P&I cover is not another 'insurance policy sold by an Insurance company, but is a form of 'Mutual assistance provided by a P&I Club. The P&I Club is a mutual insurance association formed by participating Ship owners who create a ‘pool by contributing funds from which payments are made for that portion which is not paid by a member's Hull policy.

Exclusions

The policy does not cover losses caused

by (1) 'Atomic weapons,' 'Radioactive contamination (2) Chemical or Biological or Electromagnetic weapons (3) Insolvency or financial default of the vessel's owners or operators (3) ‘Deliberate' or wrongful acts of the owner or any person acting on their behalf (4) War (5) Strikes, Riots and Civil Commotion (6) Terrorism

Additional Coverage: On payment of extra premium the Insured can opt for coverage of (1) War (2) SRCC (3) Terrorism, though these are ordinarily excluded from the cover.

Marine Cargo Insurance and Clauses ICC (A), (B) & (C)

Marine Cargo insurance policies are traditionally called 'voyage policies as they cover the cargo for the duration of its' 'voyage' or 'transit from a specified place of origin to a specified destination. You will notice the contrast with a Hull policy which usually covers the ship for a specific duration of 'time.'

The Cargo policy offers a 'point-topoint cover which starts when the loading of the cargo begins at the point of origin, continues during the voyage and any normal transhipment, and is effective till the consignment is delivered to the consignee. There are some qualifications and exceptions to this statement, but it is an accurate generalization which is true of the vast majority of shipments.

The specific perils covered vary depending upon whether the consignments are to be sent by (1) ‘Sea' (2) 'Air' or are (3) 'Inland' cargo transported by Rail or Road. Quite obviously transits by Sea or Air include parts of the voyage where the cargo is transported by rail and or road, and a policy insuring Cargo transported by sea or air also covers the cargo. The policy records the perils covered by the attachment of specific clauses.

Coverage

Cargo transported by Sea can be covered by opting for Institute Cargo Clause (A), (B), or (C).

• ICC (C) which provides the most restricted insurance, offers cover against losses caused by (1) Fire, Explosion (2) Capsizing, Grounding, Stranding or Sinking of the carrying vessel (3) Collision (4) Discharge of Cargo at a 'Port of Distress' (5) Jettison of Cargo (6) General Average Sacrifice.

• ICC (B), in addition to the six perils mentioned above also covers losses due to (7) Earthquake, (8) Washing Overboard of Cargo (9) Entry of Sea, Lake or River water (10) Total Loss of Package during Loading or Unloading.

. ICC (A) offers the widest coverage, including all the perils covered under ICC B and C. It goes beyond both by offering cover for ‘All Risks,' except those specifically recorded as excluded from the policy.

• Exclusions: The perils that are specifically excluded by all three Clauses, ICC A, B and Care (1) Insufficient Packing, (2) Delay (3) Inherent Vice (4) Willful

Misconduct (5) Un-seaworthiness of Vessel (6) Nuclear Perils. Also excluded are (7) War and (8) Strikes, Riots, Civil Commotion and Terrorism, but both these, (7) and (8), can be covered on the payment of extra premium. same as Air Cargo: The Institute Cargo Clause (Air) is applicable, and it offers cover against All Risks' other than those specifically excluded. The perils excluded are the those listed for the three Sea Cargo clauses mentioned above. However, only the excluded peril of 'Strikes, Riots and Civil Commotion (SRCC) and Terrorism can be added to the coverage on payment of extra premium. The policy cannot be extended to cover the peril of 'War.

Inland Transit: Cargo dispatched by Rail and or Road for destinations within India is categorized as 'Inland Transit Cargo. The coverage is available under the three options provided by Inland Transit Clause (A), (B) and (C).

• Inland Transit Clause (C) offers the most restricted and basic cover against loss caused by (1) Fire (2) Lightning

• Inland Transit Clause (B) extends the coverage to (3) Breakage of Bridges (4) Collision, Overturning or Derailment of carrying vehicle, and on payment of Extra Premium can be extended to include (5) Theft, Pilferage and Non-Delivery.

• Inland Transit Clause (A) extends the coverage to (6) 'All Risks' other than those specifically excluded. By implication, Clause A covers everything that is covered under Clause B and C, and in additions covers all others which have not been mentioned as exclusions.

. Exclusions: All three Clauses exclude the same perils that are excluded under the Clauses meant to cover transits by Sea and Air, mentioned above. 'War' and 'Strikes, Riots, and Civil Commotion' are also excluded from the cover, but by payment of additional premium coverage can be extended to include SRCC only.

The Single Transit Policy: Cargo Insurance grew out of the need to provide insurance for individual consignments from their dispatch to delivery. The 'Single Transit Policy fulfills this purpose. It covers a specific

consignment during a particular a voyage. However, purchasing such insurance involves lot of administrative work, and a fresh negotiation of terms. The growth of industry and commerce created the demand for a stable arrangement which would provide insurance for multiple consignments and yet eliminate the tedious administrative paperwork and negotiations. This resulted in the development of the 'Annual Policy

The Annual Policy: As the name itself suggests, this type of policy is issued for an annual period. The terms, conditions, coverage, nature of cargo to be insured, the rate of premium are all, therefore, fixed for this period, both providing a stable insurance arrangement and reducing the administrative work for both Insurer and Insured. There are mainly two types of 'Annual policy, (1) the ‘Open Policy' and (2) the 'Open Cover, each with several possible variations. The Open Policy: The features of the Open Policy are (1) It is issued

for an annual period, for which the terms and conditions are fixed (2) Multiple points-of-origin or the

destinations can be chosen. However, one of these, the points-of-origin or the destinations, must be specified in the policy (3) The Sum insured is a value estimated to equal the total value of all consignments to be dispatched in this period (4) Premium for the full Sum Insured is collected in advance while issuing the policy (5) Declaration of Consignments to the Insurer is necessary. In its most basic form, the Open Policy requires the Insured to declare to the Insurer each consignment, with details of shipment, before it is dispatched. By special arrangement Insurers also allow submission or declaration of a consolidated statement of dispatches for a month or quarterly cycle. In some cases, to accommodate turnover high in value or volume a policy can also be issued on the basis of projected ‘Annual Turnover,' thus removing the requirement for declaration of consignments (6) Accounting of Balance of Sum Insured under the policy is a continuous process. Each consignment, dispatched and declared, is reduced from the Sum Insured, and the policy continues to be in force till a credit balance is available, after which it either lapses, or can be kept in force

by payment of applicable additional premium.

The Open Cover: Has some features in common with the Open Policy, as, (1) It is also issued for an annual period for which the terms, conditions and rate of premium payable are specified (2) Multiple points-of-origin or the destinations can be chosen, but, one of these, the points-of-origin or the destinations, must be specified in the policy. However it differs in that (3) the Sum Insured is not specified (4) premium is not collected at the time the Open Cover document is issued by the Insurance Company and (5) Declaration of Consignments before dispatch is necessary so that the Insurer can collect required premium and issue an insurance policy for each shipment, as a result of which (6) Accounting of Balance of Sum Insured under the Open Cover is not required. The 'Cover' is an agreement and strictly speaking not an Insurance 'Policy. The Insurance policy is a document issued after full premium and the applicable stamp duty has been paid to the Insurance Company. The Open Cover allows the 'Insured' to specifically declare to the Insurer each consignment at the time it is about to be dispatched, and to simultaneously pay premium on the settled terms. A specific policy is then issued for insurance of the consignment which has been declared.

We now conclude our survey of Marine Insurance products with the observation that while in the context of our objectives and constraints of space, an accurate outline has been drawn, yet, there is a vast amount of detail that remains to be explored by the interested reader. We must continue with a similar survey of 'Fire' Insurance.