What are the Different Types of Marine Losses- Know Now!

The marine route is a popular trade method, especially for international business. As much as it is popular, it also involves various types of risks that may arise due to natural and man-made situations. One way to minimise losses from the maritime business is to opt for marine insurance.

Marine business losses are of various types and are not easy to quantify. Thus, it becomes essential to understand how they are calculated and incorporated into marine insurance.

What is a Marine Loss?

Marine loss can be defined as a financial loss or damage caused to goods or ships during transit through the sea, roads, rail or inland waterways. Such losses may occur due to various reasons, such as accidents, sinkage, piracy, natural calamities, man-made disasters, etc.

Marine losses are of two types: total and partial. Let us learn about them in detail so we can have a clear picture of them.

Type of Marine Losses

Total Loss

When an insured property or cargo suffers 100% or near 100% loss during transit, it is termed as a total loss. For a loss to be termed as a total loss, the property insured under cargo insurance must be untrievable by the policyholder. Total loss is further categorised into actual total loss and constructive total loss.

Actual Total Loss

For goods or insured property to be termed as actual total loss, the following conditions must be met.

1. The insured cargo or goods must be damaged completely. It means the cargo or goods must be irreparably damaged or must have been spoiled to an extent where they are considered useless.
2. The cargo or insured goods are inaccessible. Such a scenario may arise when the vessel is captured by the pirates or the goods have been stolen.
3. The vessel or the insured cargo has gone missing for a long time and there is no chance of recovery.

If actual loss occurs, the insured receives the full value of the insured goods from the insurance company. Since the company compensates the full value of goods, it takes over the ownership of the goods.

Constructive Total Loss

An insured vessel or cargo is known to have suffered from constructive total loss if it is severely damaged and the cost of repair is more than its actual value. For example:

1. The cost of damaged goods is more than its value.
2. The insured goods or property can be accessed only by spending an amount which is more than its value.
3. Saving or recovering the goods or property is not worth it. For example, if the ship is stuck in a piracy area, but it can still move out from there.

Partial Loss

Partial loss can be defined as a loss under which the insured property or goods are damaged partially, reducing their value. Partial loss is of two types: particular average loss and general average loss.

Particular Average Loss

A particular average loss means loss or damage of the insured goods or property that pertains to or affects only one party. Such a loss or damage is not distributed among the other parties.

General Average Loss

The vessel crew may have to jettison some of the cargo from the ship to lighten it and prevent the ship from sinking due to overloading, leading to general average loss. If you suffer from a general average loss, the insurer will compensate you based on the contribution rate calculated by the average adjuster.

For example, a ship has a value of ₹120 lakhs, the cargo on it is valued at ₹200 lakhs and the freight is valued at ₹50 lakhs. If the crew jettisons some cargo to save the ship from sinking, the contribution rate for each party will be as follows:

Shipowner: ₹120 lakh/₹370 * 100= 32.43%

Cargo owner: ₹200 lakh/₹370 lakh *100= 54.05%

Freight owner: ₹50 lakh/₹370 lakh* 100= 13.51%

If the average adjuster determines an average loss of ₹50 lakhs (value of jettisoned cargo), each party will contribute to the loss according to their percentage. For instance, the shipowner’s share will be ₹50 lakhs * 32.43%, i.e. ₹16, 21,500.

Extensive Marine Businesses Cover from TATA AIG

Investing in marine insurance can bring much relief and save those involved in marine businesses from suffering significant losses. With TATA AIG’s extensive marine insurance plans, you can get coverage from numerous perils without spending a fortune.

They offer customised policies that protect the insured property/cargo from multiple perils. You can opt for hull insurance, warranty and liability insurance

TATA AIG also offers the Marine Loss Control Engineering Service to help you recognise the potential hazards and take measures to minimise the losses.