How is the Premium of Marine Insurance Policy Decided?
A marine insurance policy is one of the best business protection plans you will find there. It offers financial coverage for damage caused by unforeseen events and various marine perils. The principles of marine insurance operate the plan and offer rightful coverage.
When you buy a policy for business protection, you always consider the marine insurance premium rate. It influences your decision of whether or not to buy the insurance policy. Hence, it is only fair that you must know how the premium in marine insurance is calculated.
In this blog, we will explore the factors that help calculate marine insurance premiums.
Marine Insurance Premium Rate Formula
The premium of marine cargo insurance is influenced by multiple factors. These factors help insurance providers calculate the premium of marine insurance. Even if there is a standard formula, the insurance rate in percentage changes from one insurance provider to another.
Any insurance company offers coverage for unforeseen and emergency accidents. If the factors determining the policy premium exhibit any signs of risk, accidents or errors, the insurers take note of it. When the risk is high, the premium is high and when the risk is low, so is the premium.
The formula for the marine insurance premium rate for your freight is given below.
Premium = (Shipment/Freight/Vessel Value + 10% for escalation) X marine insurance percentage (stated by the insurer)
Factors Used to Calculate Premium in Marine Insurance
● Built of the Vessel
The vessel that carries your cargo or freight is the most important factor in determining the premium in marine insurance. Its age, construction, type and health quality make a huge difference.
All the above parameters indicate the kind of safety that this vessel can provide. The risks associated with older, low-quality, poorly built and unhealthy vessels are higher, and hence, the premium is higher.
● Natural Factors
There are multiple natural factors involved when it comes to import-export businesses. There are natural events that cannot be prevented, such as earthquakes, floods, tides, tsunamis, cyclones and more.
There are a few natural factors that can be identified, such as inadequate infrastructure and less height on the ports. Such situations can cause severe damage to the vessel and the cargo or freight.
If your travel route includes such ports, the marine insurance premium will be high due to anticipated and highly probable risks.
● Vessel’s Nationality
The nationality of the vessel is important because not all nations handle marine trade correctly. If the nationality of the vessel is of a country that demonstrates a great record of safe and sound trades, the premium will be low.
If the vessel’s nationality is such that the trained crew is less numerous and exhibits high risks, the premium in marine insurance will be high.
● Policy Term
Every policy is different and offers different coverage. Some providers offer financial coverage for total constructive loss, whereas others offer assistance for partial losses.
The premium will be high in the case of a more encompassing policy than the other. If you buy your marine insurance policy from a trusted and reliable provider like Tata AIG, you get to experience a more wholesome experience of getting marine insurance.
● Policy Type
There are different types of marine insurance policies, like hull insurance, marine cargo insurance, special cargo insurance, liability insurance, freight insurance and more.
These specialised policies cater to different kinds of properties and risks, and hence, the types of policies make a substantial difference when it comes to marine insurance policy premiums.
● Cargo Type
The nature of the cargo refers to the form and cost of the goods being carried in the vessel. The insured goods, be it food, combustible items, glass or other goods, cost different, look different, need different storage space and more.
This leads to different marine insurance premium rates. When the cargo is sensitive and needs extra protection, the premium will be higher. On the other hand, if the cargo is filled with plastic or synthetic substance that is not easily damageable, the premium will be low.
Summary
All the above factors affect your marine insurance policy’s premium significantly. While the calculation might seem straightforward, it is a little complex. So, do not make the mistake of thinking that a low-cost, low-premium marine insurance policy is an affordable one. It might cost you a lot later on.
When it comes to policies such as marine insurance, one can never be too careful. You need to have a streamlined thought process and an adequate understanding of marine insurance nuances.
