Marine Insurance – Marine Insurance Explained

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Trade Finance Global / Freight Forwarding / Marine Insurance – Marine Insurance Explained

What is Marine Insurance?

The word marine insurance is often poorly understood. It is often thought that Marine Insurance covers your goods only when they are on the vessel at sea, hence the name marine insurance.

What does marine insurance cover?

Marine insurance covers goods from the moment they leave the sellers warehouse until they arrive at the buyers warehouse. In other words, the cover is from warehouse to warehouse, not just port of loading to port of discharge.

Multi Modality

Marine insurance is “multi modal” meaning it insures transport on many different forms of transport. Here is an example of multi modtality.

  1. A consignment leaves a warehouse in the country destined for a warehouse in another country. The main mode of transport is deep sea
  2. The consignment starts its journey on a truck from the warehouse to the dock side; the mode of transport being truck
  3. It is loaded on the vessel and sails to the port of destination; mode of transport being sea
  4. It is unloaded and loaded on a railway flat bed; mode of transport being rail
  5. It is unloaded at the rail head and transferred to a river barge; mode of transport being river barge

If the goods are stolen or damaged as it transits on any of these modes of transport the customer can make a claim as the policy is multi-modality.

Like any form of insurance such as home or car insurance, cargo insurance has a termination date, a date the marine insurance ends. Normally marine insurance ends 60 days after the goods arrive at the port of final destination. The importer (buyer) has 60 days to clear the consignment through customs at the port of final destination and arrange transport to the final warehouse.

The 60 day clause is very important to remember if you are importing goods into a port where custom clearance takes a very long time or where the dock authorities cannot move the cargo off the dock side quickly, due to lack of labour force or slow moving cranes. In this case, the seller under a CIF CIP contract would arrange for the 60 day clause to be changed to a 90 day clause or the amount of days needed. This change could result in a slight increase in the insurance premium.

Air freight insurance is very straight forward. There is only one cover which is for all risks. The exemptions are similar to Marine Insurance but the duration clause states 30 days, unlike 60 days for marine insurance. Like marine insurance, air insurance has the same basic rules. Like Marine Insurance, air freight insurance is also warehouse to warehouse cover, multi-modality.

Again if you think it will take longer than 30 days to clear customs and deliver to the warehouse of final destination arrange for the thirty days to be changed accordingly.

TIP: Do not say from warehouse NAME PLACE to warehouse NAMED PLACE in case the locations change, be very broad in your definition and say warehouse named country of export to warehouse named country of import.

How to choose the correct insurance cover

As with all forms of insurance, it’s sensible to ask for fully comprehensive, third party or limited mileage insurance and the premium paid would reflect the type of insurance required. Likewise with marine/air insurance asking for a particular cover and premium would be in line with the cover requested.

For sea freight, there are three types of insurance cover:

  • Institute cargo clause A
  • Institute cargo clause B
  • Institute cargo clause C (Minimum cover referred to in Incoterms 2010 CIF, CIP)

Clause A, B and C are broken down into:

  1. Risks Covered
  2. Excursions
  3. Duration

In Clause A, risks covered are all risks, in other words, this is the best cover available because you are covered for ALL risks except those detailed under exclusions .

In exclusions clause 4.3 covers insufficiency or unsuitability of packing as we discussed in module one Incoterms 2010 and packing implications.

In duration clause 8.1.4 covers the 60 day rule.

Exclusion and duration clauses never change they are the same for all three clauses A B C.

The only changes to clause A, B and C are under risk covered.

In clause B the specific risks covered are:

  • Fire or explosion
  • Vessel or craft being stranded grounded sunk or capsized
  • Overturning or derailment of land conveyance
  • Collision or contact of vessel craft or conveyance with any external object other than water
  • Discharge of cargo at a port of distress
  • Earthquake volcanic eruption or lightning
  • General average sacrifice
  • Jettison or washing overboard
  • Entry of sea lake or river water into vessel craft hold conveyance container or place or storage
  • Total loss of any package lost overboard or dropped whilst loading on to, or unloading from, vessel or craft.

The risks covered In clause C which is referred to in Incoterms 2010 under CIF CIP and usually called Minimum cover and are as follows:

  • Fire or explosion
  • Vessel or craft being stranded grounded, sunk or capsized
  • Overturning or derailment of land conveyance
  • Collision or contact of vessel craft or conveyance with any external object other than water
  • Discharge of cargo at a port of distress
  • Loss or damage to the subject matter insured caused by
  • General average sacrifice
  • Jettison

What insurance cover should be chosen?

When choosing whether goods should be insured under Clause A, B or C, several factors should be taken into consideration:

Clause A would be recommended if:

  • The goods are high valued
  • The goods are desirable, i.e. prone to robbery for example, iPhones, iPads and laptop computers
  • They are being shipped from a port with a high risk of robbery or being delivered to a port with a high risk of robbery.

If the answer is yes to all or some of the above then Clause A all risks would be recommended.

Clause B or C would be recommended if the goods are:

  • Second hand goods
  • Baulk goods such as robust machines
  • Scrap cars

What are Insurance Premiums?

Every insurance premium is different and depends on the following factors:

  • Description of goods
  • Value of goods,
  • Packing specifications and if cargo is containerised
  • Country and port of export
  • Country and port of import
  • Possible name of shipping line

A combination of these factors determines the premium paid.

How is cargo insured?

The most practical way to insure cargo is to speak to a freight forwarder and get them to insure the cargo on your behalf. Most freight forwarders have their own in house master policy from which they can issue insurance.

The freight forwarder will use the value of your commercial invoice to your buyer and add ten per cent. They will then calculate their premium based on 110% of the value of the goods.

For example, your commercial invoice reads:
Total: £3859.00
The freight forwarder adds 10% or £385.90 to give a total of £4,244.9.
The total of £4,244.9 is the basis for their premium calculation
The reason why an extra 10% is added to the invoice value is that in theory the additional 10% would cover the loss of the buyers potential profit.

What is an insurance certificate and how can they be examined?

The freight forwarder will then issue an Insurance certificate. It is important that you receive an Insurance certificate as the buyer will require proof from you that you insured the cargo under CIF or CIP for the correct value and cover.

Remember you can insure a cargo under any term of delivery, for example you may be purchasing goods under EXWFCACPTDATDAPDDPFASFOBCFR and you want to insure them at your own expense. Marine Insurance is never restricted just to CIF/CIP.

Air Freight Insurance

The Institute Clause Air is less complicated than sea Insurance because there is only one clause for air. Institute Clause Air covers:

  • Warehouse to warehouse
  • Multi Modality
  • 30 Days duration.

In Clause Air the risks covered are all risks

The exclusions for clause air are the same as marine insurance sea, insufficiency or unsuitability of packing is addressed under 3.3
duration has the same clauses, as duration under Marine insurance sea with the 30 day clause under 6.1.4

Finally, when you request Insurance from the Seller under CIF, CIP, or insure your cargo under any other Incoterms 2010 it is most important that you obtain an Insurance Certificate or Policy.


A company was exporting finished vehicles from the Port of Rotterdam to China, and required multi modal insurance.

– George E, Vehicle Company

Case Study

Vehicle Distributor

Premium insurance was required from a freight forwarder in order to cover the transport of cars from Rotterdam warehouse to the Chinese warehouse, including road and sea freight, which was assisted through TFG.

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