Risks at sea and insurance

Mawuli Zogbenu Opinion Apr - 28 - 2015 , 04:22

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, I often wonder how the vessel owners feel about these accidents. As the notorious Somali pirates 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 specialiased sea-related insurance has become imperative. 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!

Insurance for the FPSO vessel

The discovery and subsequent exploration of oil in Ghana in commercial quantities suggests that our marine territory will certainly attract cargo vessels onto our shores. Besides, the need has arisen for the procurement of specialised vessels such as the FPSO Kwame Nkrumah, a giant vessel with the biggest tower ever constructed in the oil industry. Not only can it process 120,000 barrels of oil per day, but also generate energy for its work. Together with other cargo vessels, the FPSO requires various types of marine insurance to manage the risk of losses.

What is marine insurance (MI)?

Marine Insurance (MI) is 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. It 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.

Historically, MI was the earliest well-developed kind of insurance, with origins in the Greek and Roman maritime era. Separate MI contracts were developed in Genoa and other Italian cities in the 14th century and spread to northern Europe.

Under MI contracts, the following persons are deemed to have insurable interest when loss or damage occurs:

• Vessel/ship owner (in the case of the FPSO Kwame Nkrumah, the Government of Ghana).

• Cargo owners

• For advance freight, the person or institution advancing the freight in case of a loss.

• A creditor who has loaned money on the security of the vessel/ship or cargo.

• The crew of the vessel/ship (in respect of their wages.)

• Mortgagor and Mortgagee, if the subject matter of insurance is mortgaged.

• A manager holding any property in trust.

• The insured in respect of the charges of any insurance policy which s/he may take.

Types of MI

Giving its specialised nature, MI is structured into several types for the ease of underwriting and prompt claims payments. They are 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. Mostly, 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. If the ship is lost on the way or the cargo is damaged or stolen, the shipping company loses the freight. This is taken to guard against such risks.

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-part 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 however 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, and in the case of the FPSO KN, the tankers that shuttle crude for export.

Wagering or Honour policy

Here the insured has no insurable interest and the insurer is prepared to dispense with the insurable interest.

Premium rating

Premium rates often depend on factors such as nature of the cargo, scope of cover, packing of the goods, mode of conveyance, distance and past claims experience. This is when an agreed value is placed on the cargo.