Marine Insurance

Marine Insurance

Lloyd's of London

Lloyd's is not an insurance company, but an international insurance market consisting of over 260 approved insurance brokers' firms and more than 20,000 underwriters whose activities are controlled by Lloyd's Council which came into being after the Lloyd's Act 1982, and whose appointments are confirmed by the Governor of the Bank of England.

If insurance is to be effected through a Lloyd's underwriter (and remember there are other insurance associations as well as Lloyd's, e.g. The American Insurance Association), the transaction has to go through a Lloyd's broker who, working on a commission basis, will contact one or more underwriters on behalf of his client to get a competitive rate. Underwriters finance the insurance, which means they will pay the claims, and take the premiums as their lees. They usually work in syndicates, spreading the risk. There are more than four hundred syndicates with over 160 involved in marine insurance, 170 in non-marine, 50 in aviation, and 46 in UK motor insurance. Members of syndicates write the insurance details on a Lloyd's slip which is sent to the Lloyd's Policy Signing Office where it is checked and signed on behalf of the syndicate concerned. The underwriter gets a percentage of the premium he guarantees. If, for example, he accepts 15% of a £1,000 policy, he will be responsible for £150 compensation in the event of a claim and will receive 15% of the premium.

Lloyd's members, as we have seen, are not restricted to marine insurance. Until 1971, they did not generally deal in long-term business, i.e. insurance for more than ten years on a single policy, and this meant that their activities in life assurance were limited. However, in 1971 Lloyd's Life Assurance Ltd. was established and now offers a wide range of life schemes.

Insuring with a Lloyd's member guarantees reliability as all members, like those of the Stock Exchange, have unlimited liability, and there is a fund that will compensate claimants in the event of a member's bankruptcy. In addition to members there are External Names, people who put up money to guarantee insurance and are paid a percentage of the premium. These people are not underwriters, but are recommended to syndicates by agents. The largest collective claim ever paid was probably the San Francisco earthquake of 1906, and the largest marine claim probably the Olympic Bravery, a new tanker that was written off in 1976, with underwriters paying $50 million in compensation. This explains why underwriters need to spread the risk by working in syndicates.

Lloyd's List, a daily newspaper read throughout the world, gives details of shipping movements, marine and aviation casualties, fires, strikes, etc., and essential information concerning shipping and dry cargo markets. In addition Lloyd's Shipping Index offers daily details of the movements of more than 21,000 merchant vessels. Lloyd's Loading List provides UK and European exporters with information on cargo carriers to all parts of the world. Lloyd's Register of Shipping, though independent of Lloyd's, works closely with the organization, combining to produce vessel classification giving details of age, owners, and tonnage. The highest classification as to seaworthiness and condition is 100-A1.


Marine insurance policies

Insurers will cover consignments under all risk policies which will allow compensation in the event of war, strikes, civil disturbances, etc. These policies are in the form of valued policies and are based on the stated value of the invoice, plus insurance, freight, and an extra percentage of 10%, 20%, or 30%, etc. profit margins for the consignment.

There are, however, unvalued policies, when the value of the goods have not been agreed in advance and are assessed at the time of loss. This means the consignor will, if his goods are damaged or destroyed, get the market price as compensation. The owner of the bill of lading has the right to claims of compensation.

All consignments can be covered against all risks in the form of a valued or unvalued policy. These policies will fall under five main headings:

1 Time policy, which insures goods orthe vessel for twelve months, e.g.
1 May 1993 to 30 April 1994.

2 Voyage policy, which covers the cargo on a voyage from, say, London to Kobe.

3 Mixed policy, which covers a voyagefrom A to B and then for a furtherperiod of time. This may be usedwhen a ship is going from, say,Southampton to Bermuda, then doing a series of trips from Bermuda to ports along the North American coast.

4 Floating policy, which gives cover fora particular amount, say, £500,000so that it will not be necessary tocontinually write a new policy foreach cargo that the ship carries. As the cover nears its end, the insurance company advises their client, and the premium is paid to renew the policy.

5 Open cover agreements, which aremade between the underwriter andshipper, with the latter informing theunderwriter, on a declaration form,whenever the shipment is made, andreceiving the policy or certificate aftershipment. Forwarding agents oftenhave this kind of agreement withinsurance companies, allowing themto make shipments, then inform theinsurance company in arrears, i.e.after the shipment has been made.But the arrangement might onlycover certain areas, e.g. NorthAfrican ports, and consequently theywould have to make specialarrangements if a shipment wasoutside the agreed area.

Adapted from: Ashely, A. (1995) A Handbook of Commercial Correspondance , OUP, Oxford.