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Marine insurance covers the loss or damage of ships, cargo, terminals, and any transport or cargo
by which property is transferred, acquired, or held between the points of origin and final
destination.
Marine Insurance
A contract of marine insurance is an agreement whereby the insurer undertakes to indemnify the
assured, in the manner and to the extent agreed, against losses incidental to marine adventure.
There is a marine adventure when any insurable property is exposed to maritime perils i.e. perils
consequent to navigation of the sea. The term 'perils of the sea' refers only to accidents or
causalities of the sea, and does not include the ordinary action of the winds and waves. Besides,
maritime perils include, fire, war perils, pirates, seizures and jettison, etc.
Protecting transport and marine insurance risks has been one of our core
activities since the formation of the Allianz Group in 1890.
Allianz Global Corporate & Specialty today provides global marine insurance for all types of
marine risks, from single vessels to the most complex multinational businesses.
Operating from major marine insurance hubs such as Hamburg, London, New York, Singapore
and Paris, our specialist teams include master mariners and cargo experts as well as insurance
professionals.
These global marine insurance hubs coordinate a local service delivered through our network in
more than 160 countries, providing expert underwriting, responsive local claims support and
preventative risk consulting whenever and wherever it is needed.
Our experienced underwriters, claims professionals and risk consultants service clients
throughout the marine industry, from a warehouse in Rio de Janeiro to a blue-water vessel in the
Baltic to a cargo transit bound for Shanghai.
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Comprehensive insurance for all stages of the distribution chain, including goods in transit,
storage risks, international insurance programs and project cargo for specialist shipments.
Hull and machinery coverage for all types of blue- and brown-water shipping, from dry bulk to
tankers, cruise liners and container vessels to tugs and inland vessels, plus shipyards and
building risks, as well as specialist cover for mega yachts, yachts and pleasure craft.
Marine liability insurance
A full range of marine liability cover for primary and excess liability, as well as specialty
liability products for marine operations and people working in the marine industry.
Inland marine & related property (North America)
We provide inland marine insurance solutions for more than 100 classes to clients in the North
America market, covering specialist risks in construction, transportation, communication, related
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Our experienced marine risk consultants are committed to helping clients manage risk and
control insurance costs over the long term through risk evaluations, risk improvement,
transportation and logistics recommendations, packaging advice, industry best practice sharing
and other risk-avoidance strategies.
Coverage
Stevedores Liability: for a clients liability as a stevedore for third-party
property damage and bodily injury arising out of vessel loading and unloading operations
Marine General Liability: protects marine industry artisans and contractors for
third-party bodily injury, property damage, personal and advertising industry and contractual
liability arising out of their operations
Ship Repairers Liability: for a clients liability for vessels and other third-party
exposures (including bodily injury) arising out of repair operations
Excess Marine Liabilities: for a clients capacity needs in excess of any of the
above coverages and/or excess P&I, collision liability and towers Liability
Inland Transport
Import
Export
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Type of policies
Annual Turn Over Policy: ATOP by agreement covers transit of raw material, semi finished
& finished products pertains to insured's trade i.e. Export, Import, Inter Depot movement
incidental storage from originating point to destination point on seamless basis. Key features
of ATOP are:o
Sizeable saving in premium, which is charged only on your sales turnover.
o
Seamless cover with all movement of goods automatically covered.
o
No hassles of submitting periodical declaration of movements to the insurer. Only
monthly/Quarterly sales figures needs to be submitted.
o
Facility for payment of premium on half-yearly / quarterly basis.
Specific Voyage: In Marine Insurance specific policies are issued to cover a specific single
transit. Cover ends as soon as arrival of cargo at destination.
Open Policy: It is an Annual Cargo Insurance Contract expressed in general terms and
effected for a round sum sufficient to cover a number of dispatches until the sum insured is
exhausted by declarations. The Open Policy, also known as the Floating Policy, saves the
assured the inconvenience of affecting individually the insurance of goods dispatched within
the country. The policy may cover both incoming and outgoing consignments from anywhere
in India to anywhere in India. The sum insured under the policy should ordinarily represent
the assureds estimated annual turnover of the goods.
Annual Policy: Annual policy is granted in respect of goods belonging to the Assured and or
held in trust by the assured and not under contract of sale and or purchase which are in
transit by road or rail from specified depots /processing units to other specified depots
/processing units. Important features of Annual Policy areo
Insurable interest to remain with insured
o
Policy not assignable or transferable
o
Issue of Annual policy to transport operators/contractors, clearing and forwarding
agents
o
Prohibited Policy is subject to the condition of average
Open Cover: An open cover is an agreement (not a policy) whereby the insurer will accept
insurance of all shipments made by the assured, within the terms of the cover for a fixed
period, usually for 12 months. Being an agreement, it is not stamped. However, stamped
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policies or certificates of insurance are issued against the declaration made by the assured.
The open cover is of great convenience to the clients engaged in regular import/export trade.
Property in transit
Contractors equipment
Traditionally, marine insurers such as the underwriters at Lloyds of London covered cargo in the course of
international commercial voyages by sea, providing coverage on an "all risk" basis: physical loss or damage
from any cause was covered unless the policy specifically excluded that clause. Subsequently, a marketplace
for fire insurance for buildings on land arose, especially after the Great Fire of London in 1666. Fire insurance
companies typically provided narrower coverage, where the policies specifically listed specifically the only
perils covered, and excluded all losses from any other causes.
In the 19th century the course of the Industrial Revolution gave rise to new exposures on land, such as
telegraphs, railroad equipment, and other types of property with which fire insurance companies were
unfamiliar, and inclined to grant coverage only for "enumerated perils". Marine insurers, accustomed to
providing "all risk" coverage to cargo in transit, began competing in the insurance marketplace for these types
of equipment and other "instrumentalities of communication and transportation". Despite the word marine,
most inland marine coverages are for property on land, with property transported by water insured under ocean
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marine.[1] This led to marine insurers competing in the fire insurance marketplace against fire insurance
companies. Ultimately, the National Association of Insurance Commissioners regulated the situation, adopting
a Nationwide Marine Definition in 1933 which laid out what types of property were eligible for "inland
marine" insurance coverage.
In the United States, inland marine insurance comprises about 2% of total premiums but account for a higher
percent of the profit. Like ocean marine insurance, inland marine insurance has been traditionally less
regulated in the United States.[1]
Inland marine policies became known as "floaters" since the property to which coverage was originally
extended was essentially "floating." The coverage has grown to include property that just involves an element
of transportation. The property that is insured under inland marine coverage is typically one of the following:
Actually in transit
Held by a bailee
The following coverages represent a wide range of the types of coverages typically called "inland
marine":
Accounts Receivable
Builders' Risk
Computer Coverage
Contractors Equipment
Commercial Floaters
Dealers
Exhibitions
Fine Arts
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Furriers
Golf Equipment
Guns
Installation
Jewelers
Leased Property
Museums
Musical Instruments
Processing Risks
Rigger's Liability
Scheduled Property
Transportation
Trip Transit
Valuable Papers
Warehouse Leg
History
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Maritime insurance was the earliest well-developed kind of insurance, with origins in the Greek
and Roman maritime loan. Separate marine insurance contracts were developed in Genoa and
other Italian cities in the fourteenth century and spread to northern Europe. Premiums varied
with intuitive estimates of the variable risk from seasons and pirates. [1] Modern marine insurance
law originated in the Lex mercatoria(law merchant). In 1601, a specialized chamber of assurance
separate from the other Courts was established in England. By the end of the seventeenth
century, London's growing importance as a centre for trade was increasing demand for marine
insurance. In the late 1680s, Edward Lloyd opened a coffee house on Tower Street in London. It
soon became a popular haunt for ship owners, merchants, and ships' captains, and thereby a
reliable source of the latest shipping news.
Lloyd's Coffee House was the first marine insurance market. It became the meeting place for
parties in the shipping industry wishing to insure cargoes and ships, and those willing to
underwrite such ventures. These informal beginnings led to the establishment of the insurance
marketLloyd's of London and several related shipping and insurance businesses. The
participating members of the insurance arrangement eventually formed a committee and moved
to the Royal Exchange on Cornhill as the Society of Lloyd's. The establishment of insurance
companies, a developing infrastructure of specialists (such as shipbrokers, admiralty lawyers,
bankers, surveyors, loss adjusters, general average adjusters, et al.), and the growth of the British
Empire gave English law a prominence in this area which it largely maintains and forms the
basis of almost all modern practice. Lord Mansfield, Lord Chief Justice in the mid-eighteenth
century, began the merging of law merchant and common law principles. The growth of the
London insurance market led to the standardization of policies and judicial precedentfurther
developed marine insurance law. In 1906 the Marine Insurance Act codified the previous
common law; it is both an extremely thorough and concise piece of work. Although the title of
the Act refers to marine insurance, the general principles have been applied to all non-life
insurance. In the 19th century, Lloyd's and the Institute of London Underwriters (a grouping of
London company insurers) developed between them standardized clauses for the use of marine
insurance, and these have been maintained since. These are known as the Institute Clauses
because the Institute covered the cost of their publication. Out of marine insurance, grew nonmarine insurance and reinsurance. Marine insurance traditionally formed the majority of
business underwritten at Lloyd's. Nowadays, Marine insurance is often grouped with Aviation
and Transit (cargo) risks, and in this form is known by the acronym 'MAT'.
In a contract of marine insurance, the insured must have insurable interest in the subject matter
insured at the time of the loss. Insurable interest is not required to be present at the time of
taking the policy. Under marine insurance, the following persons are deemed to have insurable
interest:-
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Maritime insurance was the earliest well-developed kind of insurance, with origins in the Greek
and Roman maritime loan. Separate marine insurance contracts were developed in Genoa and
other Italian cities in the fourteenth century and spread to northern Europe. Premiums varied
with intuitive estimates of the variable risk from seasons and pirates. [1] Modern marine insurance
law originated in the Lex mercatoria (law merchant). In 1601, a specialized chamber of
assurance separate from the other Courts was established in England. By the end of the
seventeenth century, London's growing importance as a centre for trade was increasing demand
for marine insurance. In the late 1680s, Edward Lloyd opened a coffee house on Tower
Street in London. It soon became a popular haunt for ship owners, merchants, and ships'
captains, and thereby a reliable source of the latest shipping news.[2]
Lloyd's Coffee House was the first marine insurance market. It became the meeting place for
parties in the shipping industry wishing to insure cargoes and ships, and those willing to
underwrite such ventures. These informal beginnings led to the establishment of the insurance
marketLloyd's of London and several related shipping and insurance businesses. The
participating members of the insurance arrangement eventually formed a committee and moved
to the Royal Exchange on Cornhill as the Society of Lloyd's. The establishment of insurance
companies, a developing infrastructure of specialists (such as shipbrokers, admiralty lawyers,
bankers, surveyors, loss adjusters, general average adjusters, et al.), and the growth of the British
Empire gave English law a prominence in this area which it largely maintains and forms the
basis of almost all modern practice. Lord Mansfield, Lord Chief Justice in the mid-eighteenth
century, began the merging of law merchant and common law principles. The growth of the
London insurance market led to the standardization of policies and judicial precedentfurther
developed marine insurance law. In 1906 the Marine Insurance Act codified the previous
common law; it is both an extremely thorough and concise piece of work. Although the title of
the Act refers to marine insurance, the general principles have been applied to all non-life
insurance. In the 19th century, Lloyd's and the Institute of London Underwriters (a grouping of
London company insurers) developed between them standardized clauses for the use of marine
insurance, and these have been maintained since. These are known as the Institute Clauses
because the Institute covered the cost of their publication. Out of marine insurance, grew nonmarine insurance and reinsurance. Marine insurance traditionally formed the majority of
business underwritten at Lloyd's. Nowadays, Marine insurance is often grouped with Aviation
and Transit (cargo) risks, and in this form is known by the acronym 'MAT'.
The most important sections of this Act include::4: a policy without insurable interest is
void.:17: imposes a duty on the insured of uberrimae fides (as opposed to caveat emptor), i.e.,
that questions must be answered honestly and the risk not misrepresented.:18: the proposer of
the insurer has a duty to disclose all material facts relevant to the acceptance and rating of the
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General Insurance Corporation of India under Marine Business in India (During 1998-1999 to 2000-2001)
National Insurance Company Limited under Marine Business in India (During 1998-1999 to 2000-2001)
New India Assurance Company Limited under Marine Business (During 1998-1999 to 2000-2001)
Oriental Insurance Company Limited under Marine Business in India (During 1998-1999 to 2000-2001)
Revenue Account of GIC in Respect of Marine Insurance Business in India (As on 31st March, 2001)
Total Insurance Companies under Marine Business in India (During 1998-1999 to 2000-2001)
United India Insurance Company Limited under Marine Business (During 1998-1999 to 2000-2001)
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Marine Insurance
Business today knows no boundaries. We have an access to products and services across borders as countries
continue to globalize. However the farther our goods travel the more risk they are exposed to. That's why Bajaj
Allianz brings to you the marine cargo insurance cover, which compensates losses of goods in transit.
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Risks
(Proximate Cause)
A
(All risk Cover)
B
(Wider Cover)
C
(Basic Cover)
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
N/A
Yes
No
Fire or Explosion
Yes
Yes
Yes
Malicious Damage
Yes
No*
No*
Theft/ Pilferage
Yes
No
No
Yes
Yes
Yes
Jettison
Yes
Yes
Yes
Yes
Yes
No
War Risks
No*
No*
No*
Yes
Yes
No
Yes
Yes
No
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Distribution
Distribution of the products or services produced by a firm is an important part of managing a
business. Distribution refers to the process by which products or services flow from the
manufacturer or factory to reach its target consumers. The products can be distributed through
direct channels of distribution in which the manufacturers deliver their products to the
consumers by establishing their own distribution networks. There are also indirect channels of
distribution which involve the services of one or more intermediaries (individuals and
organisations) which link the manufacturers with their consumers. These intermediaries or
middlemen specialise in performing distribution activities. Wholesalers and retailers are the two
important forms of middlemen who act as a communication channel through exchange of
product information and feedback between the producers and consumers.
An entrepreneur has to decide about an effective distribution channel that can provide a vast
market coverage to its product and is also economical. The proper selection of a distribution
channel depends on several factors such as the nature of the products involved, nature of the
market, number of types of middlemen, competitive environment,legal constraints and the nature
and size of the company. The choice of a suitable channel of distribution is very important for a
business firm because:- (i) it affects the time and costs of distribution; (ii) it affects the volume
of sales; (iii) it influences pricing and promotional efforts. Such a decision will determine the
profitability of the business of the entrepreneur and also the long term sustainability of these
profits.
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Regulatory Requirements
An entrepreneur, while managing his business has to take into account the basic regulatory
requirements for his organisation. These regulatory requirements ensure that the organisation is
functioning as per the statutory framework of the country. The most important regulation is the
Indian Contract Act,1872, which regulates all the transactions of a company. It lays down the
general principles relating to the formation and enforceability of contracts; rules governing the
provisions of an agreement and offer; the various types of contracts including those of indemnity
and guarantee, bailment and pledge and agency. It also contains provisions pertaining to breach
of a contract. The next important regulation relates to quality management by a firm. Bureau of
Indian standards has been set up by the Government for enforcement of quality standards in the
country. BIS has adopted the ISO 9000 standards set up by International Organization for
Standardization(ISO) for quality control. The ISO 9000 series is among ISO's most widely
known standards ever. It provides a framework for quality management throughout the processes
of producing and delivering products and services for the customer. BIS also provides
certification against IS/ISO 9001:2000 under its Management Systems Certification activity. An
organization can obtain a licence under the Quality Management System Certification (IS/ISO
9001:2000) Scheme/QMSCS of BIS. The scheme covers a wide range of industry and service
sectors including engineering, chemicals, pharmaceutical, cement, ceramics, food, textiles,
automotives, mechanical, metallurgical, electrical, electronics, aeronautics, hospitals, financial,
banking services, construction, hospitals, wholesale & retail trade, education& training, hotel,
power, printing, telecommunications, testing laboratories and information technology. A sound
quality control mechanism ensures that a firm produces products that match international
standards and thus boost the growth of the firm.
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It will help create a corporate identity through a trademark and branding strategy.
It will help the company, negotiate licensing, franchising or other IP-based contractual
agreements.
also, knowledge of the existing IP rights, will help the enterprise avoid unnecessary
conflicts and litigations
Hence, an effective IP management strategy will help companies use their intellectual property
to increase their competitiveness and increase the strategic advantage, while minimising the risks
and uncertainties involved. There are three phases of an IP management strategy :
enforcement.
Insurance
Uncertainty, risk and insecurity are incidental to any form of business. This makes insurance
indispensable for a business organisation. Insurance may be defined as a contract in writing
under which one party agrees to indemnify the other party against a loss or damage suffered by it
on account of an uncertain future, in return for a consideration called 'premium'. The
person/business who gets its life/property insured is called 'Insured/Assured'. The agency which
helps in entering into an insurance arrangement is called 'Insurer' or 'Insurance company'. The
agreement or contract which is put in writing, is called a 'policy'. An insurance policy provides
the following benefits to a business concern :
Protection :- it provides protection against risk of loss and a sense of security to the
businessmen.
Diffusion of risks :- as the burden of loss is spread over a large number of people.
Credit standing :- of the firm is enhanced as the businessman can easily transfer some
of his risks to an insurance company.
Continuity and certainty of business :-if all the risks were to be borne by the
businessmen themselves, the business operations would have been uncertain and halting
in character.
Better utilisation of the capital of the firms :- as the Insurance companies take over the
risk, it enables the business firm to invest and optimally utilise its capital.
Thus, the aim of insurance is to compensate the owner against the losses arising from a variety
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of risks which he anticipates to his life, property and business. It is a means of pooling of risks,
under which a group of people who are subject to an insurable risk contribute regularly to a
fund. The fund so created is utilised to compensate those members of the group who actually
suffer a loss due to some unexpected calamity. Thus the loss of a few is shared by all the
members on an equitable basis.
In India, insurance is mainly of two types i.e. life insurance and general insurance. All issues
relating to both the types of insurance policies fall within the domain of Insurance Division in
the Ministry of Finance . In order to protect the interests of holder of insurance policy and to
regulate, promote and ensure orderly growth of the insurance industry, the Government of India
has set up theInsurance Regulatory and Development Authority (IRDA). The authority has
been issuing regulations covering almost the entire segment of insurance industry including
insurance agents, solvency margins, re-insurance, registration of insurers, obligations of insurers
to rural and social sector, accounting procedures,etc.
Managing Finance
Managing the finances of the firm in an efficient manner is the most important aspect of
managing a business. It means controlling and managing the firm's financial resources. The
process of managing finances involves cash flow management which is concerned with the
inflow and outflow of money in and out of a business. For this a cash flow statement is prepared
which records a company's income and expenses in a systematic form. Cash flow statement is a
financial tool used by the companies to measure its cash receipts and disbursements over a
period of time. It lists cash to and cash from operating,investing and financing activities along
with the net increase or decrease in cash for the period.
For proper management of a company's finances, the knowledge of accountancy, particularly the
principles of double entry book keeping is an essential requirement. Accountancy tells us how to
prepare and maintain the various accounts of a company and how to communicate such
accounting information to the concerned parties. A 'general ledger account' is the most important
account prepared by a company. It records all the financial transactions of the company by
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means of two entries called debit and credit. Besides, every company is statutorily required
under the Companies Act, 1956 to keep and maintain books of accounts. Such books are
necessary because they give a true and fair view of the state of affairs of the company. For
auditing these books of accounts, it is mandatory for the companies (under the Act) to provide
for compulsory appointment of an independent person as the 'auditor' of the company. It is the
duty of the auditor to check the arithmetical accuracy of books of accounts and submit its report
on the accounting standards and goodwill of the company.
This whole process of financial management gives the true financial position of the company. A
good financial standing of a company so indicated reinforces its credit worthiness and
competitive position in the market. It is thus essential for smooth and successful functioning of
the enterprise in a profitable manner on a long term basis.
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coverage. The risk coverage is done in terms of various institute cargo clauses. Different marine
insurance policies with different risk coverage are :
Institute Cargo Clause A: This policy covers all the risks of loss or damage to goods. This is the
widest cover.
Institute Cargo Clause B: This policy covers risks less than under clause A.
Institute Cargo Clause C: This policy covers lowest risks.
SCOPE OF CARGO INSURANCE POLICY
The scope of the insurance policy depends on the risks it covers. Here, risks are termed as perils.
Perils are referred as causes of events. The various kinds of perils are:
Maritime Perils:
These are the events which are created by God or man made. Events created by God are
earthquake, collision, storm, lightning, and entry of sea water into the vessel, volcanic eruption,
rain water damage and washing overboard of cargo.
The man made events are fire, smoke, water used to extinguish fire, piracy, barratry (fraud, gross
criminal negligence of the crew to prejudice ship owner)., sabotage, vandalism etc.
Extraneous Perils:
These are incidental perils. These perils are caused due to faults in loading, carrying and unloading.
Examples are rough handling, leakage, breakage, pilferage and non-delivery etc.
3. War Perils: These perils relate to losses due to war including civil war, revolution, rebellion and
detainment of the carrier etc. if the goods are confiscated by the customs on charges of smuggling,
then insurance does not cover.
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Covers loss or damage to your goods while being transported by rail, road, air or by sea. The policy
compensates you for losses suffered and offers complete financial protection during the transit of your
goods
This insurance covers loss or damage to your goods while being transported by rail, road, air or by sea and
stored at Warehouse, Job Workers locations, Processing Units. The policy compensates you for losses suffered
and offers complete financial protection during the transit and Storage of your goods.
This Policy which is also popularly known as `Cradle to Grave`, is in fact a Package Policy which combines
the risks of transit & storage under a ` Single Policy`.
Tea Crop Insurance - covers the transit and the storage of tea
The Tea Crop Insurance covers loss or damage to your goods while being transported by rail, road, air or by
sea, Processing Risk, Packing and storage at Warehouse, Job Workers locations, Processing Units. The policy
compensates you for losses suffered and offers complete financial protection during the transit and Storage of
your goods
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Inland Marine Insurance, a policy that was originally developed for cargo sailing across the high
seas, works today to protect numerous at-home businesses from losses when they transport their
goods or equipment. Designed with optimum convenience in mind, Inland Marine can be added
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At-Home
Businesses:
Inland Marine Insurance tends to throw business owners for a loop. When searching for
coverage that protects assets on the move, most would not think a policy with the word "marine"
would apply to their needs. And besides, how can something be on land and on water at once?
The policy's moniker is a tip of the hat to the olden days, back when companies shipped their
goods by boat. In those days, the insurance was aptly called "Ocean Marine Insurance" and only
covered a ship's cargo. But as the invention of railways, roads, and automobiles changed the way
people conducted business, the insurance had to evolve, too. Today, Inland Marine functions as a
means to compensate businesses when their goods or assets are lost or damaged in transit. It can
also protect accounts retrievable and digital information as they travel to and from accounts
online.
Home-based business owners who regularly travel to events (such as wedding planners and
wedding cake bakers) or appointments (such as photographers and videographers) also need to
transport equipment, tools, and supplies to deliver their services and conduct their work. While
traveling, Inland Marine Insurance can protect your business assets against loss or damage if you
should have an accident on the way to another location. If an accident does occur, your policy
will provide the funds to replace your damaged equipment or destroyed inventory and tools.
Inland Marine Insurance for home-based businesses can provide coverage for the following
types of property:
If you want to add Inland Marine coverage to your Property Insurance policy,
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Cargo Insurance
Comprehensive all risk coverage for goods in transit for manufacturers, importers and exporters,
commodity traders, logistics companies and more.
Hull and Protection and Indemnity Insurance
Tailored coverage for a wide range of small to large marine vessels from tankers to tugs.
Inland Marine
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Comprehensive protection for assets that are moveable or mobile in nature, in transit or in
storage, where specialization is needed or unique exposures exist.
Marine Liability
Wide range of marine liability insurance products to meet the needs of transportation companies,
stevedores, wharfingers, terminal operators and port authorities, shipyards and ship repair
operations, bunkermen, vessel charterers, pilots and marine contractors in nearly every
jurisdiction around the globe.
Recreational Marine
Comprehensive coverage for boats and yachts of any size from runabouts to mega-yachts
Marine Liability
Those companies servicing and supporting the maritime industry which facilitate the safe
transport, logistics, handling and storage of goods are vital to the success of a marine-related
operation.
We understand marine is a global business and provide the specialized primary and excess
liability coverages marine-related operations need to move forward with confidence. We
combine our local expertise and knowledge with the quality and responsiveness of our
international network, to ensure the best possible protection for our clients assets and their
business reputation.
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If you're ready for a business insurance plan that keeps your assets safe, no matter where you
go, complete our all-online application. We may be able to send you quotes in minutes!
Responsible for verify tax invoice of operating expenses of Head Office and Branches.
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Qualifications:-
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than those loss reserves made for property claims. Reserves are made for outstanding claims and
other purposes as required.
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Assume an insurance company provides a quote for an annual coverage for business interruption
insurance to Company ABC. The quote indicates the annual premium is $120,000 with $10,000
payable monthly on the 15th of each month.
Even though this appears to be a simple transaction from an accounting standpoint, it may not be
so. And here is why. Some companies account for the full quoted premium at the beginning of
the coverage period by recording a prepaid asset of $120,000 and an insurance accrual of
$120,000. As payments are made monthly, 1/12 th of the $120,000 is (a) amortized as insurance
expense (to record insurance expense for the month) and (b) is removed from the insurance
accrual (to reflect the fact that a monthly payment has been made). Companies utilize this way
of recording insurance premiums to keep track of how much premium has been amortized to
expense and how much of remaining annual premium is kept in the accrued liability account.
The table below shows how this way of recording insurance premium amounts affects the
balance sheet:
Company ABC
Balance Sheet as of Beginning of Month 1
Current assets
Current liabilities
Prepaid insurance
$120,000
Insurance accrual
$120,000
Company ABC
Balance Sheet as of End of Month 1
Current assets
Prepaid insurance
$110,000
Current liabilities
Insurance accrual
$110,000
Company ABC
Balance Sheet as of End of Month 2
Current assets
Prepaid insurance
$100,000
Current liabilities
Insurance accrual
$100,000
The journal entries which the company records are show below.
When an annual insurance quote is obtained at the beginning of Month 1:
Account Titles
Debit
Credit
Prepaid Insurance
$120,000
Insurance Accrual
$120,000
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Debit
XXX
Inventory
Credit
XXX
Debit
Accounts receivable
XXX
Credit
XXX
Debit
Cash
XXX
Accounts receivable
Credit
XXX
If the insurance company does not fully compensate for the damaged inventory, there will be a
difference between the debit on the impairment of inventory account in journal one, and the
credit on the insurance compensation account in journal two. This net debit represents a loss to
the business for inventory damaged but not covered by the insurance claim.
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Debit
$10,000
Credit
$10,000
Debit
$10,000
Credit
$10,000
The monthly payments continue until Month 12 at which point the prepaid insurance and
insurance accrual are reduced to zero. At any point in time, management can see how much is
left to be paid in monthly premium payments for the coverage year.
Unfortunately, this approach of recording insurance premiums creates inflates assets and
liabilities because the company only pays $10,000 per month. The company does not have a
prepaid asset at the end of a month because the company only pays for the current month and
that entire payment should be expensed when paid. Further, the company does not have a
liability at the end of a month because any incurred insurance costs for that month is paid during
the month.
The company should only record prepaid assets when they exist or record liabilities when there
is an obligation. A more appropriate way to record insurance amounts would be as follows:
When an annual insurance quote is obtained at the beginning of Month 1:
No entry should be recorded as this point because the company has not made any payments and
has not incurred any liabilities as of yet. The payment will take place on the 15 th and a liability
will be incurred as time passes during the month (i.e., as insurance coverage is being provided).
When the first payment is made on the 15th of Month 1:
Account Titles
Debit
Credit
Insurance Expense
$10,000
Cash (or Accounts Payable)
$10,000
When the second payment is made on the 15th of Month 2:
Account Titles
Debit
Credit
Insurance Expense
$10,000
Cash (or Accounts Payable)
$10,000
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This correct approach results in no prepaid asset or insurance accrual.In the end, however, note
that either approach would result in the correct amount of insurance expense recorded in the
income statement. Its the balance sheet which will have differences under the two approaches
described above.
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FINAL ACCOUNTS
Step 1: Primary Books and Records
The final accounts are built from the returns submitted by the Divisional office to the
regional/head office. The important primary books and records maintained by the divisional
office include:
- Cash Receipt Book
- Cash Disbursement Book (Commission, claims, premium refunds, other payments)
- Premium Register
- Claims Registers
- Branches also maintain the above-mentioned books. These are accounted and merged with
Divisional accounts.
- Register of Management Expenses
- General Ledger: This is the key book of the accounting system. It contains a record of all the
accounts needed to prepare the Company's final accounts. It has two columns; 'debit' which
records the outgo and 'credit', which records the income
Step 2: Returns
Returns are prepared based on the primary books and records maintained to analyze the
performance. Each company has its own system of reporting and submission of returns.
However, all the returns are required to show the performance in each class of business. These
reports enable reviews of Divisional/Branch/Area/Regional office wise and should incorporate
comments and explanations- Premiums, extra premiums refund premiums such as premium register acceptance advice over
specific limit, copies of policy documents, summary of gross premium.
- Claims paid, outstanding: incurred claims statement analysis of intimated and outstanding
claims, cause analysis of outstanding claims.
- General administration returns Workload analysis, staff matters, analysis of management
expenses.
Step 3: The financial information/statements generated by the primary books of accounts
include:
1) Trial Balance: Accounting is done by a system of double-entry bookkeeping i.e. there must be
an equalizing debit for every credit and vice versa. The accounting transactions are:
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- Current Liabilities
-------------------------------------------------------SUB-TOTAL (B)
-------------------------------------------------------Net Current Assets C = A-B
ADD:
- Unadjusted Miscellaneous Expenditure
- Debit Balance in Profit and Loss Account
-------------------------------------------------------TOTAL
--------------------------------------------------------
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Bibliography
http://business.gov.in/manage_business/marketting_sales.php
https://tataaiginsurance.in/error/error_tagic.html
http://www.indiastat.com/insurance/19/generalinsurance/111/marine
insurance19512006/450106/stats.aspx
http://www.bajajallianz.com/Corp/corporate/marine-insurance.jsp
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