The Early Development of Marine Insurance
It is a fact that the concept of Insurance primarily being a risk transfer mechanism to protect against future losses started from Marine insurance. This suggests that marine insurance has the objective of financially providing cover to shipping vessels, boats and cargo mostly at sea.
Separate Marine Insurance contracts were thus developed in Genoa and other Italian cities in the 14th century spreading to northern Europe.
The need for insurance emerged from the desire of business persons to take calculated risks. Hitherto, such risks were encountered when sailing ships were sent off on hazardous sea voyages to trade with other countries far from their source without any form of financial compensation. This thus gave birth to the mother of all insurances – marine insurance!
What Marine Insurance Covers
Marine Insurance (MI) which was designed to cover loss or damage to ships, vessels, cargo, terminals, and any other form of sea transport for which property is transferred, acquired, or held between the points of origin and final destination also protects importers / exporters against loss, theft or damage to goods or property conveyed by sea including other waterways and rivers. Ship-owners are also protected against loss or damage to hull, machinery of the vessel and legal liability of the ship-owners, while on the high seas.
The Risk of Losing Goods at Sea
Quite often we hear of goods being lost at sea; shipping vessels sinking with the goods; and the crew and sometimes passengers getting lost. Given the value of losses in such cases, one can only imagine how vessel owners feel about these accidents and losses. As the notorious Somali pirates, among several others continue to build their shameful brands, piracy at sea continues to attract the attention of most governments across the world.
In view of the growing hazards on our seas, the need for a specialized sea-related insurance has become more critical. The catastrophic effects of happenings at sea may be similar or more heart-rending than those in the air. This is validated by the age-old argument that there is virtually nothing more to discover in space, as there is under the sea!
Stakeholders to brainstorm
It is apparent that the important role played by marine insurance or expected to play to the Ghanaian economy is what has informed the Insurance Awareness Coordinating Group (IACG) to organize a capacity building programme to throw more light on the sector especially in an era of expanding economic activities. The IACG which comprises Representatives of the National Insurance Commission (NIC), the Ghana Insurers Association (GIA), the Ghana Insurance Brokers Association (GIBA), etc with funding support from the Programme for Sustainable Economic Development (PSED) of the German Development Corporation GIZ), deemed it necessary to initiate this capacity building programme to trigger a discussion that could possibly turn the country’s marine insurance fortunes around.
Apart from seasoned insurance practitioners, other relevant stakeholders to participate in this all-important workshop are freight forwarders, cargo haulers, trans-ocean importers & exporters, trade regulators and policymakers, among others, to deliberate on the way forward.
The Need for Deliberations
This workshop which takes effect from June 11, 2018 seeks to provide a single platform on which concerns and perceived misgivings from all stakeholders would be addressed; right from ‘the anchor to the masthead’ until premiums are duly collected and claims paid when they fall due’. This, to a very large extent, would streamline and strengthen the marine insurance sector in Ghana.
The need for this workshop and the resultant anticipated economic growth, which will increase commercial activity requiring Marine Insurance intervention cannot be underestimated. Apart from reasons of protecting our territorial waters in our Exclusive Economic Zone (EEZ), one of the reasons the Marine Law is in place is to essentially protect local importers who will be disadvantaged in the event of offshore claims - especially in the event of litigation. This must be upheld to the letter!
This write-up, which seeks to pre-empt a dispassionate conversation among all stakeholders with a profound appreciation of the technicalities and financials involved in maritime trading and risk management should help stakeholders differentiate clearly between custom rates, freight charges and marine insurance premiums. In this way, there will be no need for ‘turf’ wars: insurance premiums must not be mistaken for customs rates and / or taxes! Likewise, traditional customs rates accruable from maritime trading (imports & exports etc.) will go to the Ghana Revenue Authority (GRA) appropriately, as the law stipulates.
The discovery of oil and increasing traffic for Marine Insurance
The discovery and subsequent exploration of oil in Ghana in commercial quantities and generally the growth of businesses across borders, had led to our marine territory attracting cargo vessels on to our shores.
Suffice it to say that for Ghana in particular, any unmitigated losses to any of our oil, inland water ways and harbour resources could spell devastating challenges for future generations. Instructively, the free Senior High School (SHS) policy, funded essentially with oil revenue, for instance, may suffer a significant setback.
Indeed as the need has arisen for the procurement of specialized vessels like the FPSO Kwame Nkrumah together with other cargo vessels, there is no way one could gloss over the need for various types of marine insurance policies to manage the risks.
Types of Marine Insurance (MI) Policies
Giving its specialised nature, MI is structured into several types for the ease of underwriting and prompt claims payments as follows:
- Cargo Insurance: this includes the cargo or goods contained in the ship and the personal belongings of the crew and passengers.
- Freight Insurance: This covers freight loss. Often, owners of goods are bound to pay freight, under the terms of the contract, only when the goods are safely delivered at the destination port.
- Hull Insurance: Covers the vessel and its equipment (i.e. furniture and fittings, machinery, tools, fuel, etc), with the responsibility being the ship owner’s.
- Liability Insurance: Covers third-party liabilities; largely arising from collision.
- Voyage policy: Covers a particular voyage irrespective of the time involved in it. In this case the cover is in force only when the ship starts on the voyage.
- Time policy: It covers the subject matter against perils of the sea for a definite period of time, mostly not exceeding 12 months though the contract may contain a 'continuation clause' for an extended period to complete the voyage.
- Mixed policy: This is a combination of voyage and time policies and covers the risk during particular voyage for a specified period of time.
- Valued policy: Both insured and insurer agree on the value of the subject matter to be covered.
- Open or Un-valued policy: Policy does not specify value of subject matter, but limited to the sum assured.
- Floating policy: Policy only specifies the amount for which the insurance is taken, without stating the name of the ship(s). Such policies are very useful to merchants who regularly dispatch goods through ships.
- Wagering or Honour policy: Here the insured has no insurable interest and the insurer is prepared to dispense with the insurable interest.
The way forward
Given its complexities, maritime regulators, vessel/ship-owners and managers of businesses that require the use of sea transportation, and individuals must use the forthcoming workshop to discuss dispassionately the nuances of marine trading risks, Marine Insurance, emergent freight forwarding dynamics and appreciate the implications of not having one. Revenue generating institutions are also expected to be more enlightened as regards what to require of relevant stakeholders such that marine insurance ‘money’ at especially the ports would be treated as ‘premiums for the insurance sector’, customs rate as customs levies, and not for the revenue basket as all TAXES! Even though associated with relatively high premiums, it must be noted that the losses arising from marine accidents are often daunting; hence the need for MI.
If for nothing at all, it is important to think about the growing pirates in West Africa’s vast Atlantic Ocean. A stitch in time…
‘Until next week, “This is Insurance from the eyes of my mind’
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