Understanding Different Losses in Marine Insurance

The need for marine insurance in the global trade industry cannot be undermined. A marine insurance policy provides financial protection against all kinds of losses affecting goods during transit across seas. Typically, marine losses indicate financial losses or damages experienced when transporting goods across the seas and oceans, land or inland waters as part of import and export operations.

Once you understand and quantify marine losses, you will be able to make more informed choices related to marine cargo insurance policies so that you can better safeguard your investments. This article discusses the different marine loss types so that you know how to tackle such financial burdens.

 Types of Marine Insurance Losses

Marine losses are generally categorised as either total loss or partial loss. In a total loss, either 100 percent or almost 100 percent of the value of goods is lost. Similarly, in a partial loss in marine insurance, a considerable amount of the value of goods is lost. Knowledge of such losses is important for selecting the appropriate marine cargo insurance.

Moreover, being able to understand the marine loss types helps in:

• Evaluation of the risk exposure for each trade, cargo, vessel and transit.
• Be prepared for the claim to be processed.
• Fully understand the total retrievable amount and exclusions.
• Analyse the reserve and cash requirements for every transit.
• Select the right add-on riders for your marine cargo policy to ensure better coverage.

Now, let us discuss partial loss and total loss in marine insurance in detail.

Total Loss

To ensure that you know the right marine insurance claims to make, you have to know in detail what total loss is about. Suppose your shipment, travelling across the sea, meets with a disaster in which the goods are destroyed and the vessel disappears from the surface. This is known as a total loss in marine insurance, in which the insured goods either lose 100 percent or almost 100 percent of their total value.

This is the primary reason why you should opt for a comprehensive marine policy so that you can claim compensation in such unexpected scenarios, preventing you from crippling financial losses.

• Actual Total Loss  – Total loss is again divided into two categories: constructive total loss and actual total loss. The actual total loss in marine insurance occurs if the goods are lost or destroyed beyond recovery. In this total loss type, the cargo disappears completely or is physically obliterated, without any hope of recovery.

Some examples of actual total loss include goods being completely damaged during transit because of fire, and your shipment-carrying vessel going missing without any hope of recovery.

• Constructive Total Loss  – In constructive total loss, the vessels or goods are damaged so that their repair expense exceeds their overall value. The difference between constructive total loss and actual total loss is that you still possess the goods, but recovering or repairing them is either financially unviable or impractical.

Some examples of constructive total loss include damage to the goods due to a severe storm or the vessel being abducted by pirates.

Partial Loss

Partial loss in marine policy is when a few goods are damaged while others remain intact. In partial loss, a part of the insured shipment is damaged, which affects its overall value, but does not result in destruction.

• Particular Partial Loss  – This is one of the kinds of losses in marine insurance under which a specific portion of the total consignment is lost or damaged during transit. In such a case some goods remain unaffected while others are damaged. The insurer has to calculate the depreciated value of the goods that are damaged so that they can determine how much compensation they should claim under the marine policy.
• General Average Loss  – Another type of partial loss is the general average loss. In this, certain goods are subject to intentional damage to prevent a great danger. This loss is shared among all the stakeholders involved in the voyage, meaning all parties must contribute towards the financial loss.

Conclusion

It is important to have a clear understanding of the different types of marine losses and how each loss differs from the other. Avoiding these losses is inevitable, but with proper knowledge of marine losses and appropriate financial coverage, businesses can safeguard their investments.