How does marine insurance work ?

• Introduction

• How Does Marine Insurance Work, The Basics

• What It Covers and Excludes

• How Premiums Are Determined

• Recent Events

• Summary

• Key Points

Introduction

Have you ever wondered how marine insurance works when shipments go missing or vessels get damaged? Essentially, marine insurance transfers financial risk from the insured to the insurer for losses or liabilities during cargo transport or vessel operations. Policies are created using established legal principles, like the Marine Insurance Act and Institute Clauses, which maintain clarity for businesses, especially in unstable shipping environments. In 2023, global marine premiums reached USD 38.9 billion, a 5.9% increase from the previous year.

How Does Marine Insurance Work, The Basics

Insurable interest: You must financially own or benefit from the cargo, vessel, or freight at risk.

Valuation: Policies can be valued (fixed sum at the start) or unvalued/open (value shown after loss).

Coverage clauses: Options include All Risks (broad coverage) or Named Perils (specific risks). Cargo typically has “warehouse-to-warehouse” protection during all transit phases.

General average principle: This principle involves shared sacrifice. If cargo is thrown overboard to save the ship, the costs are shared, and insurance covers your portion.

Claims process: To process and settle a claim, you need to provide prompt notice, a survey, and documentation such as invoices, bill of lading, airway bill, and survey report.

What It Covers and Excludes

Covered:

- Physical damage (fire, collision, sinking)

- Theft, pilferage, non-delivery

- Salvage and general average costs

- Optional endorsements (war risk, SRCC)

Exclusions:

- Inherent vice, inadequate packing, wear and tear, delays

- War strikes without endorsement

- Insolvency of the carrier or unseaworthiness

How Premiums Are Determined

Premiums depend on several factors:

- Cargo value/type (hazardous vs. bulk)

- Route risk (for example, in the Red Sea, where war-risk premiums rose to about 1%)

- Claims history, packaging standards, and security

- Market conditions and reinsurance pricing

Recent Events

USD 38.9 billion: global marine insurance premiums in 2023, up 5.9% from 2022.

Cargo makes up 56.9% of total marine premiums; hull accounts for 23.6%, with P&I and offshore covering the rest.

War-risk premiums on Red Sea routes jumped to around 1% of vessel value after the Rubymar sinking in 2024.

Summary

Component	Key Takeaway
Insurable interest	Required for valid claims
Valuation	Valued (fixed) vs open (declared at loss)
Coverage basis	All-risks vs named perils; warehouse-to-warehouse cover
General average	Shared sacrifice, insured reimburses local share
Premium drivers	Cargo type, route risk, claims history, market trends

Key Points

• 78% of global trade volume is transported by sea, highlighting the critical need for marine insurance.

• 40% of marine claims are linked to cargo damage, often caused by poor handling, stacking issues, or weather-related incidents.

• $3.1 billion in global marine insurance premiums were reported in 2023, reflecting the growing demand for coverage as trade risks increase.

• 4.5% CAGR growth is forecasted for the marine insurance market through 2030 due to rising e-commerce shipments and higher cargo values.