Key factors affecting Marine Cargo Insurance Premiums Rate

Major Factors Affecting Premium Rates

The premium rates are mostly fixed by the insurer depending on the risk estimates the insured shares with him. Let us look at some of the main factors that affect marine cargo insurance premium rates.

1. Type of goods

   Every day, different types of goods are in transit through various modes of transportation. The type of goods that are in transit impacts the marine insurance premium rates. A vessel containing goods like chemicals, fuel, perishable items etc. may inherent higher premium amounts as they hold more value compared to toys or other plastic items. Also, recovery of such goods is highly difficult in case of damage or loss.

2. Type of coverage

   If the shipper is involved in the shipment of goods that do not take place on regular basis, he may opt for shipment-by-shipment coverage. This is when the insurance contract is made for a particular shipment, and the coverage ends once the goods reach the final destination. 

   Similarly, for shippers involved in frequent transit, annual coverage or an open cover can be beneficial. In an open cover, the insured gets coverage for a large number of shipments over a period of 12 months. This policy usually attracts discounted premium rates.

3. Shipping route

   Certain shipping routes are highly prone to natural calamities, and pirate attacks or have to follow additional stringent policies. Predicting the intensity of these perils (or calamities) is difficult, which may lead to huge financial losses. Insurance companies consider these routes as high-risk zones, thus charging higher marine insurance premium.

4. Loss history

   Previous losses are an important factor that affects the premium rates. Many insurance companies attach questionnaires that ask the shipper to provide details on their previous losses. The main aim of the insurer is to understand the riskiness of the business. If the shipper has a history of frequent claims, there are chances that the premium charged would be high. 

   Sometimes, the shipper is also expected to prove that adequate measures are taken to avoid losses. These measures may include adhering to protocols, providing proper training to the staff, following disaster management techniques etc. All these measures can prove that the probability of a claim arising may be less. It may also impact the cost of insurance.

5. Terms and conditions of the policy

   The terms and conditions of the policy are a crucial part of any insurance document. It includes the inclusions and the exclusions of the policy which must be read carefully. In marine insurance, policies which cover total losses generally have higher premium rates compared to those which cover partial losses. Such conditions and coverage determine the premium rates.

Case

H.M Electronics received a contract of supplying various electronic items to Malaysia for a period of 12 months. The company opted for an open cover policy for 12 months that helps them undertake multiple shipments under one insurance policy. Also, the route that the shipper was to undertake (Malaysia) comes under the region which is prone to pirate attacks. So, in a nutshell, these three factors, namely, type of goods, type of coverage and shipping route become the major factors in determining marine cargo insurance premiums rate.

Conclusion:

For businesses involved in import and export, it is important to know the key factors affecting insurance premiums rate to get adequate insurance at a competitive price.