Marine Insurance

Marine  insurance is the insurance cover obtained for the damages that could be caused to the ship engaged in sea transport or to the goods on board . In other words it is the insurance cover obtained by including the damages that can be caused to the ship or to the goods on board while the goods are being transported across the sea. In sea transport there are many hazards to  which ships and goods on board are exposed. Fire, thunder, explosions, adverse unloading, riots and commotions , malicious damages etc are some examples.

But in marine insurance cannot be obtained for inherent damages. Eg : Natural decay, fungus formation and corrosion .

There are two parts in marine insurance.

- Hull insurance 

The hull insurance is affected against the loss of the ship in the voyages. Hull insurance policies could be obtained only by the ship owners or by the shipping companies. Hull insurance is the insurance cover taken to obtain compensation for the damages caused to the body of the ship.

- Cargo Insurance

This is an insurance affected against the goods ( cargo ) loaded in the ship.



                                       

Freight Insurance

Sometimes shipping freight is payable on the destination , thus, it is doubtful for the shipping that it may not be paid freight when the ship will not reach at destination . The freight insurance is a measure against this risk.

Permanent Total Loss

Even if the assets has  been completely destroyed when it is fruitless to bring it back normal position it is considered as a total damage . The payment of total compensation by the insurance company is called a meaningful total loss.

Eg : When a ship has sunk and when it is fruitless to salvage it.

Ancillary Insurance Compensation

To compensate for the loss of the freight charges due to damages caused to the ship, freight insurance policy could be obtained . This is known as an ancillary insurance policy.

                  Marine Insurance Policies

Voyage Policy

This is kind of insurance policy obtained by a shipping company for a particular voyage up to the destination. Here during the voyage if any damages were to occur up to the destination of voyage compensation shall be paid.

Eg : Taking an insurance policy for a voyage from Colombo up to Singapore.

Time policy

This is a kind of policy taken for a specific period to get compensation for the damages caused to a ship during the specific period of time.

Eg : Obtaining an insurance policy for the period from 1st January 2001 up to 3rd June 2002

Mixed Policy

This is an insurance policy taken for the destination of the voyage for a definite time period. Here insurance compensation could be obtained only when the damages are caused to the ship  during a specific period and during the voyage.

Eg : Taking an insurance policy for a period of 06 months for the voyage from Colombo To Singapore.

Floating Policy ( Open Policy )

An indemnification policy is taken for the consignment of goods expected to be dispatched within a specific period after making the due payment . Subsequently the consignment of goods to be dispatched from time to time forms should be filled for the requisite quantity and should be informed to the insurer. Then the value of the insurance policy is reduced by the value of goods dispatched. These types of policies are issued for the convenience of the businessmen who are regularly engaged in import and export activities. 



Ship Building Policy

This is the policy taken to cover the risks involved in anchoring ships for repairs and navigating and for checking and the damages that could occur to ship before they are being handed over to the person who has made the order.  

Ship fleet Policy 

This means that a company which owns several ships takes a single policy covering all the ships .

General average Compensation 

In an attempt to save the ship as well as the consignment of goods in the event of a damage has occurred to the goods of one or few person only., all the other insured shall bear the loss in proportionate to the value of the individual stocks. This is called General average compensation .  Eg : In jettisoning either one person or several persons throwing their goods to the sea.

Special average Compensation 

In a voyage by ship any risk of loss occurring to the ship or to the goods should be borne persona;;y under their insurance policies . This is called special average compensation.

Eg : Damages caused due to shaking , swaying and leakage.

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               The Procedures of Affecting a Life Assurance 

1.Submission of proposal from
2.Submission of agent's report
3.Doctor's report
4.Certificate of age
5.Acceptnce of the proposal
6.Payment of the first premium

 How Life Assurance Policy Becomes Inactive

If owner fails to pay the premium,when its due or if owners submit any fraudment application,Life assurance policy become inactive and any such inactivation must occur within a period of time (usually 2 years) defined by law then only the insured can obtain one of the following remedies;
1.Obtain the paid up value
2.Obtain the surrender value.
Paid up value is use to purchase an amount of coverage where no further premiums are paid into it.Thus it becomes a paid up policy. In other words when a policy is taken out,it is taken out with an agreed sum assured.If you allow your policy to laps due to the stopping of premium payments,then the sum assured is reduced to give you a lower value the reduced sum assured  is paid up value.

Obtain the Surrender Value

The amount the policy holder will get you from the life insurance company If he decides to exit the policy before maturing.The insured can obtain certain % of payment (premium) paid by him up to the date of termination.In order to obtain surrender value,the policies which are taken for less than 10 years should have paid their premium continuously for 2 years and policies with more than 10 years  Should have paid their premium at least for 3 years.

Which Insurance Principles are not applied in life assurance?

•  Indemnity
• Contribution
• Subrogation  

What are the contents of a life assurance deed?

• Name of the insured and address
• Type of risk
• Value of the insurance and time duration
• Health condition of insured
• Personal habits
• Details about family 
• Occupation of the insured
• History of the insured
• Losses of history

What are the determinants of premium of a life assurance policy?

•  Risk of the occupation(job) and risk of life
• Value of insurance policy
• Time of maturity
• Age of insured
• Coverages
• Personal habits
• Current and past health.

        

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Dual Insurance, re-insurance and underwritting insurance

                                                              Dual  Insurance

If someone is taking two or  more insurance policies for the same property or an asset from two or more insurance companies that is considered as dual insurance 

But  in the event of damage, compensation is paid for the true damage only.

However in the case of  life insurance , s the principle of indemnity does not apply , compensation could be obtained under all the policies ( Face value )

Eg: If a motor vehicle worth Rs. 500000/= is  insured for the  same value with three insurance companies , the fully indemnity from the
insurance policies of  all three companies that could be obtained is only Rs. 500000/=

But this  will not apply to life insurance . Compensation could be obtained from all the companies up  to the face value.

                           Re-insurance
 
This is to insure the insurance policies in the possession of  the insurer with a local of foreign insurance company , with the knowledge of the insured.

In this case  the relevant premium is paid by the insurer. Re-insurance is done for  the purpose of minimizing the risk of the insurer.

Eg : The oil tanks of the Srilankan Petroleum Corporation are reinsured with the British " Loyld' s reinsurance by the Srilankan Insurance Corporation.

                       Underwritting Insurance

Underwritting  is insuring assets with a very high value with sveral insurers at the same time. Here under one policy several insurance companies under take the risk of it.Aeroplanes, Ships and large scale projects which have high values are insured in this manner.


                                  The cover note 

When an insurance company agrees  to undertake the risk, it will inform the insured the premium to be given . When the first premium is paid cover begins to continue . For an evidence of this the company sometimes issues a "Cover note " which is  a temporary document until the policy is being prepared . In this case of motor insurance a certificate of insurance is issued as evidence of cover in addition to the policy and any cover note
 

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Nature of Shares

Nature of shares and types of shares are given in a section 49 of  the companies act . The shares issued by the company accordingly are considered as a movable property, of the company.

By the company's Article of Association the following rights are conferred on the relevant shareholder who owns a share company .

-  The right to exercise one vote for one share at a vote taken for adopting a resolution .
- Right to have an equivalent quota in the profit payable by the company
- Right to have an equivalent quota in the distribution of excess assets in a liquidation .

Different types of shares

Different classes of shares can be issued by a company. The following are included among them.

- Ordinary Shares
- Preference Shares
- Special Shares
- Shares with voting rights
- Shares without voting rights

It would be seen that as per decision of the Board of Directors as indicated above, various rights , privileges and shares with liabilities could be issued as required by the company.

Shares issued accordingly could be of  the following nature.

- Ordinary / Equity shares
- Preference shares
- Special shares
- Shares with limited or conditional voting rights
- Redeemable shares

                                Ordinary / Equity shares

Equity shareholders will receive dividend and repayment  of capital after meeting the claims of preference shareholders. There will be no. of fixed rate of dividend to be paid to the equity shareholder and this may vary from year to year . This state of dividend is determined by the directors . Sometimes , in case of larger profits.

                             Preference shares

Capital stock which provides specific dividend, debit paid before any dividend are paid to ordinary shareholders which takes precedence over common stock in the event of liquidation. Preference shares represent partial ownership in a company but the shareholders do not enjoy any of the voting rights of  common shareholders.

                                   Deferred / Founders shares

There are issued to founders  of a company .They have special rights to get dividend . Deferred shareholders enjoy the right to all the profit left over after the payment of equity shares.  Usually companies avoid issuing such shares because they cause down on ordinary shareholders.

                               Non -  Voting Shares

Non- voting shares are, as there names implies , equity does not have vote even though it is entitled to share of profit. eg : Deferred shares , Preference shares. ( But they have guaranteed dividend ) and most Non - voting shares do not have guaranteed dividend.

                                    Golden shares

Shares with special voting rights that allow the holder to vote out other shareholders usually in restricted.circumstances . It may also give the shareholder  special rights . Common powers attached to the golden shares are :
                           Veto power : ability to  block any shareholder from acquiring more than in certain proposition of ordinary shares.
                            Power to block any take over.

                                        Types of Preference Shares

- Cumulative
- Non - Cumulative
- Participative 
- Redeemable or convertible

                          Cumulative Preference Shares

Preference shares on which dividend on acquire in the  extent the issues does not make timely the dividend payment

                               Non - Cumulative Preference shares

Preference shares which  unpaid  dividend do not acquire.

                                Participative Preference shares

Preferred stock which in addition to regular dividend also pays an additional dividend ( Participating  dividend ) when common stock dividend exceeds a specific amount.

                Cumulative Participating Preference shares

Shares  which are not cumulative of profit but also participate in the profit which is left over after equity shareholders are paid.

                          Redeemable Preference shares

Company issues redeemable  preference shares as for a specific time  period. These shares are issued when the company has some   growth and expansion  plans in mind . The shareholders can choose time to maturity  on these shares . At the end of stipulated they can choose to exchange the shares for either equity shares of for cash.

                      Non- Redeemable  Preference Shares

Company issues Non redeemable preference shares not for a specific period of time

                                                     

   

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Indemnity

According to  the principle of indemnity when a damage is caused to an insured property a compensation equivalent to the damage shall  be paid.

In  other words , the insurance policy will compensate only up to the extent loss or damage , thereby leaving no  possibility for making profits .

This principle is not applicable to life insurance or property accident insurance. it is because the value of is human life or part of the human body cannot be assessed in terms of money.

Eg : if  we assessed the damage of a vehicle after met with an accident , that the damaged value will compensate for the insured  by the insurer.

                Why Indemnity Principle is important ?

- Avoid  making profits from insurance
-  Differentiate  insurance from gambling 
- Control the insurance fund by compensating only the actual amount of the damages.

                Concepts Relating to Indemnity

       Over  Insurance

Over insurance is insuring a property for a value more than the true value ( current market value ) of that property. In this case if  there is a damage , compensation is paid only on the assessed value of the damage .

Eg : If a machine worth Rs 70,000 is insured for Rs 90,000 it  is an over insurance.

- In the event of partial damage - Partial damage is assessed and compensated to cover the loss of the insured.
- In the event of a full damage - The value prevailing on that date will  be assessed and payments are made ( the market value as at that date will be paid ) .  otherwise compensation is not paid in the amount stated in the policy .

Under  Insurance

Under Insurance refers to  the insurance a property of an asset less  than the real value ( current market value ) of the property or asset.

Eg : Property valued at 200,00 being insured at 120,000 

 - Here if the partial damage caused is Rs. 60,000 the compensation paid is as follows

                                  120,000  x  60,000 
                                  _______________
                                     200,000 

- If there is a total damage only 120,000 is paid as compensation.

                  

          What are the sub principles of Indemnity?

- Contribution
- Subrogation 

                             Contribution

This principle means that if a particular  property were to be insured  with several insurance  companies and if a damage is  caused to such  property compensation is paid on the basis of the proportion of the values of the respective policies issued by the companies .

Eg : If a motor vehicle  valued at Rs. 500,000  is insured in 4  companies A, B, C and D for the following different values.

A = 300,000
B = 200,000
C = 150,000
D = 350,000

If there  is a total damage for that particular asset.  This is the way how the  insurance companies going to compensate for the loss.

A = 500,000  x 300,000 = 150,000
       _________________
             1,000,000

B = 500,000 x 200,000 =  100,000
       ______________
         1,000,000

C = 500,000 x 150,000 = 75,000
       ______________
             1,000,000

D = 500,000 x 350,000 = 175,000
       _______________
              1,000,000 


                                      Subrogation


Under subrogation , an insurer will take over all the ways in which an insured will  receive compensation , if  the said insurer  has already paid compensation for a damage or loss to the insurer.


Eg: suppose "D" has  fully insured his car with janashakhti insurance, and "R" has insured her car with Ceylinco insurance. Think that "D's car  is fully damaged and written off, after it meets with an accident with "R's car . subsequently "D' s insurance company Janashakhti pays full damage  to "D".  Although "D" can receive compensation under "R's insurance policy , he  will not be   eligible for any claims from "R's insurance company since that right now  belongs to 'D' s insurance  company , not "D".

  The total an insurer receives under subrogation shall not exceed that amount it  paid  out to the insured  and the residual value  of the asset belongs to the insurer who ultimately bears the loss due to damages.

Letter of subrogation is given to the insurer by the insured to transfer the ownership of  the value that is received from the other sources.

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Principles of insurance

                  Principles  of  Insurance

- Utmost good faith
- Insurable interest
- Indemnity
-  Contribution
- Subrogation
- Proximate- Cause

                       Utmost Good Faith

The principle of utmost good  faith, implies that the insured should tell to the insurer  all information about life or property which is being insured and also the insurer should reveal to the insured all  the information and  conditions  affecting the agreement.

This information is much more needed in making a decision as to whether the insurance risk is accepted or not and to determine the premium.

Both parties involved in policy are required to notify any subsequent changes in above information.

                The Facts that should be revealed by the Insured under the principles of Utmost Good Faith

In Life Insurance

- Name of the person 
- date of birth
- Health condition 
- Income
- occupation
- Information regarding dependents
- Civil status 
- Residence

In Property ( general) Insurance

- The cost of the property
- Thee present value of the property
- If mortgaged details of such mortgage
- Estimated life of the asset

The Facts that should be disclosed by  the insurer under the principle of Utmost good Faith

- The value of the policy
- The value of the premium
- The conditions
- The conditions for renewal
- Thee surrender value and the relevant provisions to  make it  a paid up policy.
- Instances when compensation is not  paid
- Maturity of the policy
- The other benefits

Why Utmost Good Faith Considered as a special Principle of Insurance ?

This principle differentiate insurance contract from other commercial contracts. Normally commercial contracts are subject to the doctrine of  " CAVEAT EMPTOR". That means " let the  buyer be aware "
. But in insurance  , parties involve in the agreement should not be worried about the risk that they have due to the principle of Utmost Good Faith. Because it ensure that the contract trustworthy .

Why this principle is breached by an insured party what the available options with the insurer?

- cancel the insurance agreement
- Avoid of compensate for the damages
- Take a legal action against insured
- Ex - gracia /Ex -  Gration payment

               Ex - gracia / Ex - gration payment

When an insured doesn't reveal certain important facts to the insurer , the insurer will not be liable to pay claims to the insured under the policy . But , Considering many factors if the insurer decides to pay the claim to the insured foregoing the mistakes of the insured , it is known as ex - gration payment .

In several situations insurer decides to claim  for damages although the insured breached the  principle of Utmost Good Faith

- Misrepresentation of information by the insurance agent 
- When insured misunderstood the conditions and the information regarding to the insurance agreement.

                                                Insurable Interest

This is the legal right of a person to insure property or life . To obtain that right the following three requirements have to be fulfilled.

 - There should be an object , life or property which is liable to be damaged.
- What is intended to be insured should be that property or life .
- An advantage of having the property and a disadvantage of  losing the property .

Examples for insurable interest 

- Husband towards his wife and the wife towards her husband .
- For a singer regarding his voice .
- For a motor vehicle owner and the driver.
- For a film director regarding the actors and actresses acting in his film.
- For the owner and the tenant regarding a building  .
- the employer has an insurable interest over his employees.

If the public can take a cover to any life or property without considering the ownership of it, they will damage  those property of life and make profits. But this principle avoid to make profit by harming public property and life

                               Proximate Cause

When a damage is caused  to an insured property compensation could be claimed only when the damage is caused by an insured risk. Even though it had occurred due to many causes if the proximate cause has been covered by the insurance policy, compensation can be obtained .

Eg: A building could be  damaged due to an earthquake , cyclone or  due to fire simultaneously . Think that  the property will be damaged owing to fire. Then if the property is protected under  fire insurance policy  then the insured is eligible to rightfully claim compensation.

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Insurance Business

               WHAT IS INSURANCE ?

Insurance  is a risk transfer mechanism. Risk means uncertainty about future occurrences.

Insurance us a common fund created by people  who face similar risk to compensate for the actual losses due to the damages considered under the policy of it.

Eg: For similar risk, all  motor cycle riders face the similar risk of happening an accident. So insurance companies collect fund from those riders and pay for the accident.

Insurance has evolved to  compensate for the losses and damages that would be caused to the property , due to fire, theft, and accidents and also the effects of accidents on the lives of  individuals thereby causing debility and death, Accordingly the main objectives of insurance is to get risk coverage for unexpaeted risks in the future or to minimize the future risks.

 What does it mean by premium ?

The price of insurance is called insurance premium

Criteria to be considered to identify Insurable risks 

-  Predictability  -  Is the degree to  which a correct prediction or forecast the damage.
- Causality - It should be a pure risk
- Unconnected - Unconnected with other losses occurred for property and life
- Verifiability - The cause , time, place and volume of the damage should be analyzed.

                What are the insurable Risks ?

It cant be possible to give  insurance for all risks. There are few characteristics of the insurable risks .

- Must have an insurable interest ( Eg : Own life,  Own property )
- The risk must involve a loss that is capable  of financial measurement . ( Eg : Vehicle, building )
- There must be large number of similar risks . ( homogenous)
- Only pure risks can be insured ( Eg : An accident)
- The loss must be entirely fortuitous nature.
- The risk that is to be insured should not be against the public policy.

                                    Non insurable Risks

- Risks caused by natural and inherent factors.
Eg : Depreciation , evaporation , Drying up , Obsolescence, aging 
- Future business losses.
- Risks arising due to wrong managerial decisions.

                             An Insurance agreement

Insurance agreement is the contract between the insurer and the insured after accepting an offer by the insurer from the insured.

                       Parties Related to Insurance

1. First party ( insured)

That is the person who obtains the insurance cover. Installments ( premium ) have to be paid as per the agreement and he has the right  to claim compensation in the event of a  loss. He is the person who forwards the insurance proposal .

2. Second Party ( insurer0

This is the institution which bears or undertake the insurance risk. This institution insures various risks pertaining to persons and properties and pays compensation , when a loss occurs.

3. Third Party 

 All other parties ( persons and property ) other than those who are involved in the insurance agreement (Policy)

               Why  do we need Insurance ? ( Benefits of Insurance)

- It gives peace of mind
- It provides financial security. 
- Protection for family
- Insurance provides assistance to business enterprises .
- Insurance provides financial stability to commerce, industry and the community.
- Insurance serves as a basis of credit.
- Insurance provides funds for investment.
- Insurance plays a vital part in the reduction of losses.



                               

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