Presenter: Host: Kyle Nichols, CRM, FCIP, MBA Catherine Viglas President President & CEO Hugh Wood Canada Ltd. CITT
Marine Insurance - An introduction Pres esented ented by Kyle Nichols ols, , Presid esident ent Hugh Wood Canada da 2
Agenda • Marine Insurance: An Introduction • What is Marine Insurance • Marine Insurance a Brief History • Types of Insurance Freight Forwarders Legal Liability – Cargo – Warehousemans Legal Liability – Supply Chain • How Does Marine Insurance Work? • Considerations when selecting a brokerage • How we can help • 3
Marine Insurance – An Introduction 4
What is Marine Insurance? The function of all insurance including marine is to transfer the risk of loss and/or liability arising out of the ownership or interest in an asset to a third party. • Marine Insurance, more specifically, is one of the oldest recorded insurances in the world and was created to respond to the risks associated with the movement of goods. • Within `marine insurance` there are several types of insurance that aim to address specific risks. • Globally, it a market valued at over $30BB in premium globally and increasing annually • Insurance is an essential part of the industry working to facilitate the global movement of goods around the world • It protects the supply chain and its stakeholders 5
Where does marine insurance come from: Marine Insurance – a brief history • 5000 BC the merchants in China have been recorded to share their risk across more vessels to avoid significant losses when crossing treacherous rivers/seas • Lloyd's of London became the global hub in the 1700s – Place of knowledge – Place of transaction As the market grew so to did the formalities not only of the shipping • trade but of the insurance terms which protected the ship owners, the traders and the asset owners 6
Fundamentals of Insurance As stated, the function of all insurance is to transfer the risk of loss and/or liability arising out of the ownership or interest in an asset to a third party. • Key T erms to know when reading insurance contracts: – Insur urable able interest est: : T o be a party to the contract you must have a financial interest or benefit direct or indirect, in the insured object i.e. cargo – Indemni emnity ty: The principle of making an insured whole at the moment just prior to the loss i.e. no gain or loss – Utmos ost t good od faith ith: common law principle of acting honestly; to not mislead or withhold information 7
Incoterms • Incoterms and Insurance Incoterm Termina Named Seller Carrier Port Ship Port Buyer 2010 l Place EXW Seller Buyer Buyer Buyer Buyer Buyer Buyer Buyer FCA Seller Seller Buyer Buyer Buyer Buyer Buyer Buyer CPT Seller Seller Buyer Buyer Buyer Buyer Buyer Buyer CIP Seller Seller Buyer Insurance Insurance Insurance Insurance Insurance DAT Seller Seller Seller Seller Seller Seller Buyer Buyer DAP Seller Seller Seller Seller Seller Seller Seller Buyer DDP Seller Seller Seller Seller Seller Seller Seller Seller 8
Types of Marine Insurance Based on today’s audience, there are three types of insurance that are more common than others: 3 rd party coverage – Freight forwarders legal liability (FFLL); – Marine Cargo (Cargo) 1 st party coverage – Warehousemans legal liability (WLL) 9
Freight Forwarders Legal Liability (FFLL) Freight Forwarders’ Legal Liability: • – Legal Liability coverage protects the purchaser from 3rd party claims of negligence. – FFLL has been specifically designed to cover the exposures of FF operations: • Specifically a FFLL policy covers your legal liability of the goods in transit as well as your professional liability in the arrangement of the goods in transit. Liability can be imposed on the carrier in cases where: • The carrier is not seen to have carried goods in “due dispatch” (in other words, “within a – reasonable amount of time”) The carrier could at the outset of the dealings reasonably foresee the shipper or any other – party having an interest in the cargo suffering loss caused by delay The carrier could be held liable for the damage to goods in their care, custody and control – In the case where Freight Forwarders’ are offering insurance they must be • licensed to do so Certain provinces (AB, MB, SK) require a license to undertake this activity – 10
Freight Forwarders Legal Liability cont… • Key wording/coverage details Third Party Liability – • Bodily injury and property damage coverage • Financial loss due to negligent act(s) i.e. delay, breach of import/export regulations, error or omission on bill of lading • Defense costs Key exclusions – • Certain excluded cargo classes (cash, bullion, art, cigarettes & tobacco, spirits) • Operation of marine vessel/auto unit • Liquidated damages • War • Strike • Confiscation 11
Freight Forwarders Legal Liability cont… • Claim examples Freight Forwarder arranged the shipment of marine parts to China. The freight was – not properly secured for transit by the shipper and arrived damaged. Trucker picked up shipment of goods at the warehouse. T aking a normal route to the – airport the truck was hi-jacked and the freight stolen Deep pockets theory (contingent liability): Arrangement of transport of goods (load – broker) does not undertake due diligence of carriers through the transport chain and an accident occurs. The carrier involved in the accident has no insurance. The Load broker’s insurance would be called upon 12
Marine Cargo • Marine Cargo: – This is direct, or 1 st party coverage for the property in transit. – The owner of the property would secure this coverage on the goods they have an interest in. – Should there be loss or damage to the goods while in transit or storage they would seek coverage from the cargo policy 13
Cargo cont… • Key wording/coverage details Insurable Interest – Goods Insured – T erritory – Conveyances – Perils – Key exclusions • War, capture, detainment seizure… – Strikes – Delay – Inherent vice – Economic and trade sanction exclusion – 14
Cargo cont… • Grounding of Höegh Osaka – January 5, 2015 Freight Forwarder arranged the shipment of marine parts to China. The • machine was not properly secured for transit by the shipper and arrived damaged. Trucker picked up shipment of goods at the warehouse. T aking a normal • route to the airport the truck was hi-jacked and the freight stolen 15
Warehousemans Legal Liability (WLL) • Legal Liability coverage that protects a warehouse operator's against failure to exercise reasonable care in the handling and storage of a customer's goods results in loss of, or damage to, those goods. • This coverage can be purchased as a separate policy or as part of a Logistics Insurance Package (most times with the FFLL). When included in the FFLL it is important to note because it can have it’s own limit along with it’s own terms and exclusions. 16
The Supply Chain • Marine insurance is the first step towards insuring the supply chain of your own company as well as your position within it with your clients • If global trade is table stakes then you have to define and protect your position within it • Can marine insurance be a strategic tool for you in this regard 17
The Supply Chain cont… • How insurance interacts with the supply chain Property, business interruption (BI) and contingent business interruption (CBI) – Marine Insurance: Cargo, Freight Forwarders Legal Liability (FFLL) – Trade Disruption Insurance (TDI) – • R TDI e v Property/BI Property/BI e Property/BI n /CBI /CBI /CBI/WLL u e Stock/Inventory Cargo/FFLL Stock/Inventory Cargo/FFLL Stock/Inventory Goods in Customer Supplier Goods in Warehouse A location transit location Transit location s s e t s 18
Claims Example • Explosion in the Port of Tianjin, August 12, 2015 & August 15, 2015 What happened? A series of explosions that occurred at a container storage station at – the Port of Tianjin starting on Wednesday, August 12. The first two explosions occurred within 30 seconds of each other, and they were followed by another eight on August 15. Why? Chinese state media reported that the initial blast was from unknown hazardous – materials in shipping containers at a plant warehouse owned by Ruihai Logistics, a firm specializing in handling hazardous materials. Loss: The official report released in early February 2016, providing sobering statistics of – the event – 165 deaths; 8 people missing and 798 injured; 304 buildings, 12,500 vehicles and 7,500 containers either damaged or destroyed 19
How does Marine Insurance Work? There are several players within the insurance transaction: • Insurance urance compa panies: nies: Lloyds remains one of the top marine insurers – Several ‘stock’ companies have large premiums invested in the space – Several niche/marine only insurers play in this space – Broker okers • Local vs. Global – Speciality vs. General – Agent vs. Brokerage – Marine Insurer’s will only accept business through the broker channel therefore the selection of broker is paramount to placing an effective program. 20
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