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Marine insurance is a type of insurance which covers the loss or damage of goods, ships, cargo with transportation by water held between the points of origin and the final destination. It covers a wide range of marine risks like physical damage. A marine insurance policy transfers the liability of goods from the involved parties and intermediaries to the insurance provider. From the beginning, those handling the goods have limited legal liability. To protect against loss or damage, exporters can obtain an insurance policy that safeguards their goods from any potential risks.
If there is damage or loss to the goods while on board, the carrier may be held responsible, though most compensation is on a 'per package' or 'per consignment basis. This may not completely cover the value of the goods. To reduce this risk, exporters usually choose to insure their products prior to shipment.
Marine insurance is necessary for fulfilling export contract obligations. In accordance with agreements such as CIF (Cost, Insurance, and Freight) or CIP (Carriage and Insurance Paid), the exporter must take marine insurance to protect their bank or buyer interests. Although sellers are not required to insure goods under DDU (Delivered Duty Unpaid) or DDP (Delivered Duty Paid) terms, but in practice they generally do.
The first guiding force for Basis of Valuation is Marine Insurance Act, 1963. As per Section 18 (3) of Act "In insurance on goods or merchandise, the insurable value is the prime cost of the property assured plus, the expenses of and incidental to shipping and the charges of insurance upon the whole.
states that (1) The sum which the assured can recover in respect of a loss on a policy by which he is assured, in case of an unvalued policy to the full extent of the insurable value or in the case of a valued policy to the full extent of the value fixed by the policy.
Subject to the provisions of this Act, and to any express provision in the policy, where there is a total loss of the subject matter assured:
If the policy be a valued policy, the measure of indemnity is the sum fixed by the policy.
If the policy be an unvalued policy, the measure of indemnity is the insurable value of the subject-matter assured.
States that where there is a partial loss of goods, merchandise, or other movable, the measure of indemnity, subject to any express provision in the policy, is as follows:
Where part of goods, merchandise or other movable insured by a valued policy is totally lost, the measure of indemnity is such proportion of the sum fixed by the policy as the insurable value of the part lost bears to the insurable of the whole, ascertained as in the case of an unvalued policy.
If the subject matter liable to contribution is insured for its full contributory value; but, if such subject matter be not insured for its full contributory value, or if only part of it be assured, the indemnity payable by the insurer must be reduced in proportion to the under-insurance, and where there has been a particular average loss which constitutes a deduction from the contributory value, and for which the insurer is liable, that amount must be deducted from the assured value in order to ascertain what the insurer is liable to contribute.
Where the insurer is liable for salvage charges the extent of his liabilities must be determined on the like principle.
If the goods are to be delivered by seller at Port of loading (FOB Point). In such case seller has to incur additional expenses to bring the cargo upto FOB point and theses expenses would be in the form of inland freight upto port of loading, export clearance charges, handling/forwarding expenses etc. Seller’s expenses would increase in such a case and their selling price/invoice value would be more than the selling price at ex-works location. Based on said illustration, invoice value for goods delivered at FOB point may be A+B+C and so on.
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