Understanding your
Marine Trade insurance

By Malcolm Stewart Branch Manager

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Common terms explained

When it comes to protecting your business, having solid commercial marine insurance is essential. However, if you’re not an insurance expert, navigating the complex terms of these policies can be a daunting task. While most of us have likely heard the term ‘excess’ in travel, car or home insurance before, you may not be as familiar with such words as ‘endorsement’ and ‘limits of indemnity’.

In this guide, we will outline some common terms that appear in a Marine Trade insurance policy to help you have a basic understanding of your cover and enable you to make more informed choices about whether the type and amount of coverage are appropriate for your business needs.

Understanding the cost of insurance premiums

Let’s start with the basics; an insurance premium is just a fancy way of saying the cost of your insurance policy. In insurance terms, it describes the amount you pay to safeguard against risks.

Insurers consider various factors when determining premiums to mitigate the level of risk they undertake by providing cover. These factors include the nature of your business, the industry it operates within, the size and location of your business, the value of your assets, and your claims history, amongst other factors. In simple terms, the higher the perceived risk by the insurer, the higher the premium.

The level of cover you choose will directly impact the cost of your premium. Although the perils and coverage of a marine trade insurance policy are generally standard and are not highly customisable, you can choose specific limits of indemnity (LOIs) and additional coverage sections, which will, understandably, cost more. It’s a balancing act between protecting yourself and managing the cost of your insurance. You might want to consider how your loss history works out against the savings on your premium to understand if a higher excess is worthwhile.

For example, consider a business paying a premium of £50,000, with an excess of £5,000. If this business made ten claims in the past year, with their insurers paying out £25,000 from all those claims combined, the insurer might only offer a 5 percent premium reduction for opting for the larger excess on renewal. This would equate to a reduction in premium of £2,500. With the excess set at £5,000, it would not make financial sense, and any savings that the business made by opting for the large excess would be drowned out by what they would need to pay out in claims.

While premiums represent a significant cost to businesses, understanding the factors that influence them and actively managing risks can help lower costs whilst ensuring you have the right level of cover for the needs of your business.

Understanding excesses in an insurance policy

Nearly all insurance policies require you to contribute some money in the event of a claim, the amount of this excess or ‘your contribution’, is stipulated when you take out a policy. If you choose to contribute a higher the level of excess, the cost of the Insurance premium can be reduced. Excesses are typically applied around losses or damage to property and public liability but are rarely applied for personal injury.

Excesses are generally low, a standard excess fee for a commercial insurance policy might be £250 or £500. However, it’s important to understand that certain risks, within the same policy, can attract a higher excess to mitigate the potential for a larger claim – for example, the risk of subsidence often attracts a standard excess of £1,000 – £2,500.

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What is the limit of indemnity?

Another essential term in an insurance policy is the limit of indemnity. It sets the ceiling or cap on the amount an insurer will pay out for a claim, this can be applied to an individual claim, or it can be aggregated for a series of claims over the policy term; the limit of indemnity outlines the maximum level of protection provided. It’s important for businesses to closely scrutinise these limits to ensure they reflect the potential risks and financial exposures faced in their business.

For businesses operating in sectors with exposure to significant liability claims, the standard limits of indemnity should be assessed to ensure they meet your needs. it may be prudent to negotiate higher limits or explore umbrella policies that provide additional cover over and above the primary policy limits.

What are endorsements or extensions in insurance?

Endorsements or extensions are a formal amendment or addition that changes the terms, coverage, or conditions of the original policy. Endorsements typically apply restrictions to a policy, while extensions allow for adjustments or ‘optional add-ons’ beyond the standard policy terms, allowing businesses to tailor their commercial insurance policy to better suit their unique needs. In commercial marine businesses, which often come with their own specific set of risks and unique needs, this can be an important consideration. An increasingly common extension is ‘Heat Work Away,’ which is designed protect you against claims made against you arising from heat work undertaken away from your premises. While heat work conducted on your premises is typically declared to insurers and included in a marine trade insurance policy, heat work performed off-site is usually excluded. To ensure coverage for any off-site operations, you’ll need to request it as an extension to your policy.

It’s important to engage in a thorough assessment of your operations, industry, and specific risk exposures when considering extensions. By doing so, you can identify the areas where additional cover is needed, thereby enhancing the overall protection afforded by your Marine Trade insurance policy.

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What are covered perils in an insurance policy?

For high-risk sectors, it’s crucial to check the “Covered Perils” section carefully, which will set out the specific risks you are insured against. This can include everything from fire, theft, and water damage to more complex forms of legal liability. In marine trade insurance, the covered perils specifically address risks associated with the maritime industry, such as storms, sinking, theft, and grounding, along with damage from the loading or unloading of cargo.

Marine trade insurance may also cover other explicit maritime risks such as pollution liability, and damage to containers and equipment used in marine operations.

Equally important are the exclusions which will define the risks that are not covered by the policy. Common exclusions might include acts of war, wear and tear, or damage resulting from poor maintenance. In marine insurance policies, this might also include damage from wilful misconduct or inherent vice (a natural defect in the cargo) and delays in delivery. Understanding any exclusions in your policy is critical to identifying potential gaps in your cover and ensuring you’re fully protected.

What is the Conditions section in an insurance policy?

The Conditions segment of your policy lays down the rules and procedures that the policyholder must follow to ensure their policy remains valid. This may include the requirements for timely notification of claims, steps to take to prevent further damage in the event of a loss, and accurate record-keeping. Failure to adhere to these conditions could result in a denial of cover for an otherwise valid claim or a reduction in the amount recoverable.

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While we hope that our guide to the key terms in an insurance policy has provided valuable insights into your policy, there is no substitute to having a discussion with your insurance broker. Here at Haven Knox-Johnston Commercial, our team of experts is passionate about educating the marine industry on all aspects of insurance. From explaining the types of insurance cover available, to thoroughly assessing the specific risks that your business faces, a review with one of our specialists can offer you peace of mind, knowing that you are fully protected in the event that you need to make a claim. Whether you are a sole trader, or you have a team relying on you, having the right insurance coverage in place can make the difference between your business weathering a storm, or facing closure.

If you would like to speak to our marine insurance specialists, contact 01905 930 760 or email us at hello@HavenKJCommercial.com

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Haven Knox-Johnston Commercial is a trading name of A-Plan Holdings which is authorised and regulated by the Financial Conduct Authority No. 310164. Registered in England and Wales under company registration number 750484. Registered Office: 2 Des Roches Square, Witney, OX28 4LE. Calls may be monitored and recorded for quality assurance purposes

Understanding yourMarine Trade insurance