More on insurance in the marine industry

Insurance plays one of the key roles in the transportation of goods. Special focus to insurance for marine transportations is accounted for many factors and risks accompanying this business.

An insurance contract is an integral part of freight deals. In arranging these deals, the list of issues under discussion comprises determination of an insured and indemnified person.

Naturally, the most considerable dangers lurk a vessel in wait on its way from one port to another. Besides, a number of issues to arise is rather big, from storms and other natural factors to emergencies, fires, and even pirate attacks. One way or another, insurance helps solve issues arising in case of emergency.

In the course of marine transportation, the responsibility is to be apportioned against various patterns. In world and Russian practice, the standard set of contractual clauses (trade terms) is used. Detailed information on these trade terms is contained in the reference book called Incoterms. The reference book comprises official rules of the International Chamber of Commerce on interpretation of trade terms.

The Most Common Trade Terms

Currently, the most common trade terms are the Incoterms abbreviations EXW, FOB, CIF and CIP.

In case of applying EXW (ex works), the risk passes to the buyer from the seller’s door right after the production of goods. In this case the person interested in insuring of cargo is the buyer. So, more often he is the insured person.

In case of applying FOB (free on board), the risk passes with cargo crossing the vessel’s railing in the shipping port. In such case, the seller bears responsibility in the course of previous transportation and possible storage at the port.

The insurance issues are considered in CIF (cost, insurance, freight) and CIP (carriage and insurance paid to). These stipulate that the seller is to pay the cargo insurance agreement for the amount equal to the value of cargo plus 10% (expected reward). As a rule, application of CIF makes it necessary to bring the coverage in balance with so called all risks coverage. According to CIP the buyer and seller are to agree upon transport coverage volume.

Situation in Russia

Despite extensive harm to the industry caused by the world crisis, the freight insurance is going to remain a prospective area of activities.

In prior years, steady growth of the Russian freight insurance market was observed. As for competition, there is a complex situation. Against the background of the bitter rivalry with foreign companies in the area of international transport, our domestic insurers have the advantage in the area of cargo transportation within the territory of the Russian Federation.

The Russian freight insurance industry features some inactivity. The scope of coverage comprises from 10% to one third of all transports. According to one of opinions, about half of all marine transportations are insured while in case of railroad transportation, this figure is 40%, automobile transportation – about 20%, and area transportation – approximately 10%.

In the whole, the Russian freight insurance industry shows slow but steady growth. Here we observe two divisive tendencies: growth of number of insured freight traffics in the recent years and reduction of insurance rate caused by business competition and gain in the insurance portfolio.

We also should mark close liaison between dynamics of development of the freight insurance market and transport market in the whole. Advance in the regions with accelerated development is very important for insurance companies. Recently in Russia, traffic volume of equipment for primary sector, construction materials and machinery is permanently large while the amount of insurable transport of industrial and computer equipment, essential commodities and medical supplies to such regions as Western and Easter Siberia, the Far East region, districts of the High North is growing.