Fundamental Factors When Underwriting Marine Cargo Insurance
The fundamental factors of underwriting marine cargo insurance lie within a world fraught with international intrigue, storms and crime. Marine underwriters stand ready to reimburse your marine insurer for ocean shipments delayed, lost in transit or stolen. The underwriting process spreads a loss out through several re-insurers or groups of re-insurers called managed syndicates, so that no one entity risks an unacceptable loss.
The type of cargo, whether it's finished goods, refrigerated goods, pharmaceuticals or machinery, makes a difference in the underwriting. An underwriter wouldn't insure refrigerated cargo shipped in an unrefrigerated container. A single piece of machinery may be worth more than a whole shipping container full of clothing bound for a discount store, so it represents a greater potential loss to the underwriter. Customs regulations may bar or delay the entry of some goods. Because late arrival or government seizure are things underwriters insure against, these regulations become another fundamental factor in the underwriting process.
The packaging of the commodities influences the decision to underwrite, as well. If, for example, a shipment of automobile parts were packed so that the humid atmosphere inside a shipping container would cause water to settle on the parts, causing rust, the underwriters might exclude rust from their protection.
Weather is always a potential hazard at sea, so marine cargo underwriters always consider the seasonal weather along the route of the shipment. Because underwriters insure against late delivery, as well as loss or damage, the port of origin and the destination port are considered. Some ports, where inefficiency and theft are prevalent, give underwriters pause.
The risks in marine cargo insurance underwriting aren't the same as its hazards. A risk isn't inevitable, whereas the hazards of the marine world often are. Sinking is the primary risk facing marine cargo insurers. With the current expansion of the Panama Canal, to accommodate ships greater than 950 feet in length, ship sizes are increasing. The loss of a ship means a greater risk for a larger loss.
Loss of cargo to theft also is an increasing concern. As of October 2012, piracy is on the rise, according to the International Marine Bureau's Piracy Reporting Centre. Theft from shore facilities, such as warehouses and storage yards at ports, also is a risk insurers consider.
One risk peculiar to marine insurance is a condition called "general average." When cargo is deliberately jettisoned from a ship for the safety of the ship and crew, the loss to one shipper is shared by all shippers. Marine cargo underwriters insure against general average by assessing the condition of the ship and the experience of the captain and crew.
Marine cargo underwriters, like all insurance people, look at the worst-case scenario. For many, the worst-case scenario is serving as the underwriter on both ships in a collision between two large ships. One class of tanker, called an ultra-large crude carrier, can carry more than $4 billion worth of crude oil. If two such ULCCs collided, the loss could include not only the ship, but the cargo, the cost of litigation -- which the underwriters also may insure -- environmental cleanup costs and government fines.