Is marine cargo the cheapest insurance product?

This post is inspired by the thinking of one of my mentors, Subhas Sircar, about Marine cargo insurance.His view was that Marine cargo insurance covers a vast majority of the risks covered by other insurance products, apart from the coverages exclusive to itself …………… yet it was treated as an ‘Also-ran”  and did not or rather, still does not get the recognition or the price it deserves.

Let me briefly explain how – The broad basis on which a cargo underwriter would evaluate a risk from the exposure standpoint are three-fold: 1) The nature of the cargo 2) The intended voyage or transit 3) The mode of conveyance used with finer details of the same. It must also be remembered that during a voyage, the cargo is not always moving. There could be limited or sometimes prolonged periods when the cargo is static, yet in the ordinary course of transit i.e. outside the control of the Assured. Based on the nature of the cargo (subject-matter) with its attendant risk exposures, a Property underwriter may not be willing to write a storage or a manufacturing activity related to that cargo. Yet, a cargo underwriter agrees to underwrite movement of that cargo from one place to another, wherein there could be periods when it is not moving but static and exposed to all the risks which the Property underwriter visualizes. Yes, the values at risk could be vastly different under a Property insurance and a Cargo insurance, yet the risk exposures remain the same.Secondly, most Property underwriters do not prefer ‘standalone warehouses’ containing stocks for insurance and if the storage happens to be in the open, chances of acceptance get reduced further. In the ordinary course of transit, cargo may be kept in warehouses for transshipment,etc and even in the open, awaiting loading on to/unloading from the carrying conveyances and the cargo underwriter gamely carries these risks.

Most automobile underwriters in India look at commercial vehicles like trucks and trailers with great caution, given the  number of accidents causing damages to the vehicles apart from third-party liabilities. Yet, a large portion of cargo movements within India happen through these very trucks/trailers and the cargo underwriter agrees to insure the goods carried in them for a pittance of a premium. Apart from the perils covered by other lines of insurance for goods like Fire, Burglary, Theft, AOG,etc. on a clearly named basis, the cargo underwriter is more generous and gracious, covering almost everything under the sun. He gives an All-Risk cover with only named exclusions ( General exclusions under ICC-A 2009), and in a claim situation it becomes his responsibility to establish that the loss fell under one of these exclusions. Multiple handling, loading, unloading and maritime perils are of course exclusive to Marine.

If one compares the named coverage offered under marine and other lines of insurance, it reveals that the drafters of these wordings have also been liberal. Take for example the cover under a standard Fire ( Property) policy in India. Among other listed perils, it covers ‘Riots, strikes & Malicious Damage”. Riots & strikes are excluded under Institute Cargo clauses (A) and Inland Transit clauses (A). So, it may appear that the cover offered by a Fire policy is wider. In reality, it is not so. Invariably, these exclusions under ICC-A/ITC-A are nullified by the addition of the Institute Strikes clauses ( Cargo) & Strikes, Riots & civil commotion clause respectively at no additional cost. The effect? The coverage given by the marine underwriter becomes wider as it includes ‘civil commotion’. The Property or Fire policy in India excludes civil commotion if it assumes the proportion of a popular rising, military rising, revolution,rebellion,etc. The Indian Penal Code does not define ‘civil commotion’ and the proportions it has to assume to be treated as an exclusion paves the way for a subjective decision in case of a claim. Such confusion is avoided under marine. Secondly, by addition of the Institute Strikes clauses ( Cargo)/ SRCC to the marine policies, the risk of Terrorism also stands covered during the ordinary course of transit.. Again no additional cost. In case of Property/Fire insurance in India, if the risk of Terrorism is to be covered, a separate Sabotage & Terrorism policy has to be purchased, which again excludes civil commotion exceeding the proportions to be termed an uprising. Additional cost involved. If civil commotion of whatever degree has to be covered, what will be needed is a full-blown Political Violence cover which will also cover war on land, but it will be expensive. In case of Property All-Risk covers too, riots, strikes, civil commotion, Terrorism and even malicious damage are exclusions.

The idea is not to belittle other lines of business who have their own challenges & peculiarities but to bring home the fact about ‘inadequacy of pricing’in case of marine cargo. Price corrections do happen in marine but broadly based on ‘experience’ i.e. the claims history & actuarial evaluation of Ultimate Loss Ratios and very rarely is exposure-based underwriting resorted to. The need of the hour is to move to ‘exposure-based’pricing and to do so, the requirement will be of underwriters and intermediaries who understand and appreciate the various exposures involved. marine cargo as a class of business cannot afford to be the cheapest product in the Indian market much longer.