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5 Key factors affecting Marine Cargo Insurance Premiums

December 21, 2017 • 155 Likes • 19 Comments
In my line as a general insurance agent, the class of insurance I handle the most is marine cargo insurance. On a daily basis, I am in
discussion with my clients, insurers and surveyors either on quotation or claims matters. I will be sharing in a series of articles about marine
cargo insurance and shall start by explaining what are the factors affecting the premium rates for marine cargo insurance. If you are an
exporter or trader and have always wondered how the insurer computes the rates, this article is meant for you.

As an exporter or trader, have you always wonder why the insurer increasing or decreasing your premium rate is. What is the basis of them
quoting you a rate after you have filled up the insurance proposal form? Have you thought of wanting to reduce your marine cargo insurance
premiums? The following are 5 type of factors that will affect your insurance premiums.

1. Type of cargo

It is best to start with cargo because this is one of the key questions all underwriters will ask you when you want to cover for marine cargo
insurance. For the purpose of illustration, I will mention a two types of cargo to let you have a broad understanding. There can be many kinds
of cargo to be shipped out. Just to name a few, there can be consumer goods, commodities or industrial materials and many others. Cement
for example will always be on the higher side of insurance premiums because it is a total loss the moment it comes into contact with sea
water. On the other hand, cooking on the other hand, is a safer type of cargo compared to cement as it is not a total loss in the event of a
contamination. The key here is the higher the salvage value of the cargo, it is deemed to be safer for the underwriters and hence lower
premiums rates. Another type of product that generally will attract higher rates are perishable goods. Due to the nature of the goods, there is
very little salvage value once there is a damage to the goods.

2. Voyage

This is also a huge determinant as a shipment from Singapore to Hong Kong is very much different with a shipment from Philippines to USA.
It is likely that the latter will have a significantly higher rates due to the fact that it needs to go through the unpredictable weather at Pacific
Ocean whereas the shipment from Singapore to Hong Kong is a relatively peaceful journey through South East Asia. In addition, the ports at
a developing country may not have such good facilities as a developed country. Hence the port of loading and discharge plays a huge factor as

3. Type of Coverage

In every marine cargo insurance, you are covered under the Institute Cargo Clause. Depending on what your underwriter offers, it ranges
from ICC(A), ICC(B) and ICC(C). Without going into technicalities, ICC(A) is the most comprehensive, followed by ICC(B) and lastly ICC(C).
The last one is the most restrictive and it only covers for total loss of your goods. Naturally, ICC(A) will be the most expensive of all and
ICC(C) will be the cheapest as it only has limited cover. An example is that Piracy is generally not covered under ICC(C) and ICC(B) coverage
whereas it is covered under ICC(A). Another example will be if there is a water damage on the cargo, ICC(C) does not cover whereas it is
deemed to be covered under ICC(B) and ICC(A)

4. Type of vessel

One of the other key underwriting factor is the type of vessel used. Various information on the vessel will be key for the underwriters, i.e. age
of vessel, if it has gone through a classification society, shipping company managing the vessel, the protection and indemnity coverage and
(Would you want to put your cargo in a vessel like the one on the right?)

If your cargo is placed in an older vessel, there is a higher risk that the vessel is slower and could be subject to pirates attack. Also, if the vessel
is unclassed, there might be certain safety checks there are not checked and well-maintained by the ship manager, which may result in your
cargo being damaged along the voyage.

5. Loss Ratio

Have you had any claims in the last 3 years? This is the standard question all insurers or intermediaries will ask you in the proposal form. If it
is a new setup, the standard answer is no. However, if you have been operating for a few years and you have had claims history before, they
would like to know what the claim details are, nature of loss? Also, the insurers would like to know, what have been done to ensure such
claims will not happen again. This will facilitate them in understanding the nature of risk better for your company and better price your

In conclusion, there are actually many other factors affecting your insurance premium rates but the above 5 are just the main 5 factors in
pricing your insurance premiums. If you feel that there are other factors affecting marine cargo rates, do feel free to leave your comments
below and will be happy to discuss.