Insurance Coverage by Hull & Machinery Underwriters and Role of Brokers
Hull and machinery underwriters produce insurance coverage for boats, ships, and other naval assets. It gives assurance to shipowners against hull, machinery, and onboard equipment damages in the event of any perils confronted while on the water, including an accident with another vessel, natural obstacles, and other structures as well as storms and other natural disasters. The term "underwriter" derives from the Lloyd's of London insurance market.
Somebody would accept risk on a given business venture (historically a sea
voyage with associated risks of shipwreck) in exchange for a premium.
They
would write their names under the risk information written on a
Lloyd's "slip" created for this purpose. Thus, the insurance policy was
"underwritten." Of course, there are other opportunities in the H and M (hull and
machinery) markets. For example, one can work as a hull and machinery
insurance broker, or a claims adjuster, among other positions.
Ship owners (and their bankers/ mortgagees) need insurance for vessels.
The reasonable cost of repairing vessel damage accidentally caused by a
peril insured against. The perils are perils of the seas (heavy weather,
grounding, stranding, striking objects and collision), fire, lightning, explosions,
negligence of ship repairers, negligence of masters, officers, crew or pilots,
among other risks.
Vessel’s proportion of general average expenditures: such as salvage
charges (or other tug hire), refloating a stranded vessel, or port of refuge
expenses when an imperiled vessel must seek a place of safety.
A total loss: if the vessel is so badly damaged by an insured peril that it is
reduced to a wreck, or if the estimated costs of recovering and repairing it
exceed the insured value. A total loss would also include a vessel sinking.
H&M coverage protects an owner from potential losses
Sue and Labor expenses: which are expenses incurred to minimize the loss
under the hull policy. In a way, these expenses are like general average in that
their purpose is to reduce loss or damage, but they are different because they
are incurred for the vessel's benefit only, not for the benefit of both vessel and
cargo. For example, spending $10,000 to recover a lost anchor and chain that
would cost $125,000 to replace would sense, so underwriters happily pay the
lesser "sue and labor" expense.
Collision liability claims: If the insured vessel collides with another vessel, and
the insured vessel is at fault, repairing its owner to pay the damages sustained
by the other vessel and cargo thereon, the hull underwriters indemnify the
shipowner for the amounts so paid up to the insured value, plus legal expenses
incurred.
As an underwriter, one need to assess the risk and establish the premium
to be paid. Some of the factors an underwriter might consider are:
The Vessel’s Valuation
The Vessel’s Trade
The Flag
Ownership of the Vessel
Management of the Vessel
The Loss Ratio of the Assured
Market competition
other
Role of brokers
Hull and machinery insurance brokers play a significant role in assisting
companies in procuring insurance. Unlike cars, a vessel may very well be insured
by numerous underwriters around the world. Thus, as a broker, one will need to
canvas the world's insurance markets to obtain the best insurance coverage for the client. It could mean travel to places like the U.K., Holland, Norway, Sweden,
Japan among so many others.
Brokers also provide services beyond procuring insurance, such as providing
risk assessments, insurance consulting services, insurance-related regulatory
and legislative updates, claims assistance services, and others.
Claims adjusters
– the claims adjuster or claims handler investigates insurance
claims by interviewing the claimant and witnesses, consulting accident reports,
arranging for the surveying of property damage, among other duties, all to
determine the extent of the insurer's liability.
Resources:
Lloyds of
London: The most famous insurance market with strong roots in shipping. Visit web siteto learn about its rich history and its role both past
and present.
Navigators, Inc.: Is an insurance company that has been providing marine
insurance for decades and is a leader in the industry. They have offices in the
New York area and worldwide.
Continental Underwriters: Insurance specialists with a 50+ year track record of providing clients with tailored marine, inland marine, excess liability and cargo coverages across USA.
MICA:
The Marine Insurance and Claims Association (MICA) is a professional insurance
association that promotes fair and efficient practices in adjusting marine claims –
whether hull and machinery, cargo, and others. Their annual meeting and dinner
each October in New York is an excellent place to meet the industry and to learn
about marine insurance generally. Membership in MICA is open to anyone interested in marine claims and on the insurance, side to work a reasonable solution to settle these claims matters.
Related articles
General Average & The York Antwerp Rules The law of General Average is a principle of maritime law whereby all stakeholders in a sea venture proportionally share any losses resulting from a voluntary sacrifice of part of the ship or cargo to save the whole in an emergency. It is a unique maritime concept. One of the most
ancient aspects of shipping is the general average. When an intentional sacrifice of property is made onboard a ship to avoid a common peril, the law of general average requires all of the parties to the maritime adventure that benefited by the intentional sacrifice to contribute money on a pro-rata basis.
P&I Clubs guideline The P&I Clubs are correctly called Protection and Indemnity Associations and number around 20 worldwide with the majority being United Kingdom based. The ship owner in taking out insurance with a particular association becomes a member of that Club. The Clubs are mutual in nature, which means that all costs involved in providing cover or paying out a claim to any one member is shared by all members. This is achieved by setting a rating or premium for the owner, known as an “advance call”, and is based on the owner’s history and exposure to risk.
Marine cargo insurance underwriters Ships operate in a difficult environment and cargo may be lost or damaged
during domestic and/or international transit. However, ocean carriers are well protected under the law
against responsibility for loss or damage to cargo that might arise during the
transportation of goods.
Hull & Machinery underwriters
A hull and machinery underwriter provides insurance coverage for boats, ships, and other naval assets. It gives protection to shipowners against hull, machinery and onboard equipment damages in the event of any perils encountered while on the water, including collision with another vessel, natural obstacles and other structures as well as storms and other natural disasters.
Procedure for insurance claim
A ship is insured against various risks by the Owner taking out different insurance policies. But for many reasons insurance claims often being denied by marine insurance providers. So that a shipowner can prosecute a claim accurately and successfully, the Master needs to send full details and documentation relating to any accidents or incidents resulting in damage to the ship, property, cargo, or personal injury. Nautical Institute publication, “The Mariner’s Role in Collecting Evidence” is a good source of guidance to shipmasters.
The role of a insurance broker
Marine insurance brokers play a significant role in helping companies and individuals procure marine cargo insurance, hull and machinery insurance, P and I cover, and other forms of insurance as the case may be. They are able to canvas the worldwide marine insurance market. The goal is to assist in getting the best terms of insurance cover at the most competitive premium rates.
Marine salvage procedures
Marine salvage contracts fall into two main categories. First, those which enable salvage services to be rendered on the basis that the compensation to be paid to the salvors will be determined after the completion of the services, either by settlement or if the parties cannot agree, then by a court or by an arbitrator
Role of a freight forwarder
A freight forwarder, forwarder, or forwarding agent, is a person or a business entity that organizes shipments for individuals or corporations to get the goods from the point of origin to the desired market or from a producer directly to the customer or a distribution center. A freight forwarder dispatches shipments via a common carrier and books or otherwise arranges space for those shipments on behalf of shippers.
How a Non Vessel Operating Common Carrier ( NVOCC) differs from a freight forwarder?
A NVOCC (Non vessel Operating Common Carrier) is "a common carrier that holds itself out to the public to provide ocean transportation, issues its own bills of lading or equivalent documents, but does not operate the vessels that transport cargo”. A NVOCC is a carrier. It enters into a contract of carriage with the cargo shipper. It undertakes responsibility for the carriage like a ship owner that owns a vessel. However, the NVOCC is a carrier that does not own or operate the vessel used to perform the carriage.
P & I Insurance cover and Members of IG club
At the heart of P and I is the concept of “mutuality”. Shipowners form a nonprofit association to protect and indemnify one another against third party liabilities. Unlike commercial insurance, the insured ship owners, meaning the “members” of the Club, are both the insurer and the insured. Each P and I Club is controlled by its members.
Role of shipbrokers
London and New York have always been viewed as major shipbroking centers. In recent years, many U.S. ship brokerage firms have relocated to offices in Stamford and Greenwich, Connecticut, and nearby communities. Of course, there is a large shipbroking presence in Singapore, Hamburg, as well as other cities.
Sale & purchase brokers
Sale and Purchase Brokers (S and P Brokers) are highly specialized shipbrokers. Their clients are typically ship owners. S and P Brokers serve as intermediaries in the business of selling and buying ships. They assist in the sale and purchase of second-hand tonnage and newbuilding. Their compensation is normally in the form of a commission.
Ship agency services
A ship’s agent works on the front lines and there might involve an unlimited number of issues in port. The agent must work towards solving these problems. An agent needs to learn a lot fast about ships and cargo.
Role of a ship management company
Ship management companies are located in the world’s maritime centers. Many companies manage large fleets on behalf of numerous ship owners. Many of the larger management companies also own vessels. Essentially, the decision to outsource a ship management function is a financially driven one. In most cases, outsourcing of ship management services means that the shipowner can conduct business at a reduced cost, primarily due to the reduction of in-house staff and resources.
Ship finance considerartions
Ship finance is somewhat different from other asset-based lendings such as real estate finance. After all, shipping business earnings can be quite volatile and therefore less predictable. Additionally, the collateralized asset (the ship) is extremely mobile. The traditional method for ship finance was private resources.
Ship recycling industry
Scrapping ships (also known as ship breaking or ship demolition) is a dangerous and controversial part of the shipping business. Ships have a life span of 20 – 30 years – sometimes a little more -sometimes a little less. Ships wear out and/or there may be a lack of spare parts. After a while they no longer make sense economically. The shipowner needs to make a decision – continue to repair or scrap.
Ship registry procedure
To trade internationally a ship must have a nationality. Without being registered under certain flag state a ship cannot enter the geographic limit of another state. Once registered a ship becomes subject to the laws of a registering nation. Registration makes the ship entitled to military protection and therefore it is an extension of that nation anywhere in the world.
Maritime security concerns
Maritime security issues affect the way ship owners, charterers, cargo interests, ports and terminals, and their insurers do business. There is the added expense to deal with. There has also been an increase in the number of international conventions and domestic legislation geared towards furthering maritime security.
How maritime law works in the United States? Maritime law used to apply only to American waters within the ebb and flow of the tide. However, it now covers any waters navigable within the United States for interstate or foreign commerce. Admiralty jurisdiction also includes some maritime matters not involving interstate commerce, for example, recreational boating.
The Master’s Responsibility during Salvage Operation
Request for Salvage -
The Master shall normally request salvage after consultation with the Company. However he has complete authority to seek salvage assistance without reference to the Company if he considers this necessary.
Requirement of towing arrangement in oil tankers, readyness, & training onboard
All Oil, Chemical and Gas Tankers above 20000 DWT, constructed on or after 1st July, 2002, are equipped with an “Emergency Towing Arrangement (E.T.A.) both Forward And aft to provide the ship with a rapidly deployed towage capacity in an emergency.
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