Adu Gbolahun is a Business Developer of LASACO Insurance Company plc, Apapa branch and Welfare Officer of Nigerian Ship owners Association (NISA) he has been involved in the maritime industry for more than five years, he features as this week’s Shippers Guide on the role of marine insurance in maritime trade.
Role Of Marine Insurance In Maritime Trade
What is shipping insurance?
Marine or shipping insurance is divided into marine cargo insurance and marine hull. Marine cargo insurance is the insurance that covers the cargo that the ship in conveying from the port of origin to a designated port, while the ship that is conveying the cargo is insured under marine hull.
Every party in the maritime trade has what is called insurable interest, an importer is not interested in the condition of the ship all he wants is for his consignment to be delivered as at when due, so, his own insurable interest is the cargo. The vessel owner is interested in the safety of the vessel because the vessel is very capital intensive, so he insures his vessel under marine hull and machinery.
Due to the rate of competitiveness in marine shipping, ship owners have to compete with other foreign ship owners and when they do not get jobs they will not be able to pay their premium and if they do not pay premium the insurance companies will not be able to cover their risk.
What does vessel insurance entail, who and what can be insured?
Since the ship is capital intensive, the vessel owner wants to protect his investment by all means, the insurance company stands as a backup in case of a collusion, the vessel capsize, accidents on board the vessel, deaths etc.
In insuring the vessel there is something called P and I which is Protection Indemnity, this type of insurance is not done in Nigeria because we do not have the facility here. Most of the time it is done abroad either by the vessel owner, or his insurance company here in Nigeria can take a P and I cover on his behalf from another insurance company overseas. There was a time that NISA was working on having an African P and I established in Nigerian maritime but it is still under processing.
P and I is a cover that protects pollution by spillage from the vessel, if the community holds the vessel responsible, P and I cover responds to that risk. So it protects the vessel owner from being indemnified. Also, if an accident occurs to the vessel, the ship owner takes pictures of the accident and reports to his insurance company, who investigates and once it is confirmed to be true, they step in and pay the claim but when it comes to the containers or crude that the vessel is carrying most times it is the importer that has insurable interest and covers the cargo in case of lose. So your interest allows you to know the type of insurance policy you want to take.
So you mean that the importer cannot hold the ship owner liable for damage to his cargo?
To a point he can but to a larger extent he cannot. If the vessel owner has an insurance policy that covers his vessel he cannot.
What about in the event that the transaction was funded by the banks?
If a bank funded the transaction, the bank will want their money to be covered and if it is not covered, they run a risk of losing their money. Take for instance, an importer approaches a bank with a good business importation plan after doing his feasibility study, the bank agrees to funds the business only for the goods to capsize at sea before getting to Nigeria, who bears the risk? and maybe the importer or ship owner did not invest more than 20 percent of his own money, the rest is sourced from the bank. In this case the both parties, that is, the importer or vessel owner and the bank come together to take an insurance policy to cover either the cargo in the case of finance for the importer or the vessel in the case of providing finance for the ship owner with a clause called the First Laws payee, this First Laws Payee clause means that the insurance company must pay the banks first and whatever is left is given to the other party.
In the event of a claim what is the payment procedure?
First is to notify the insurance company that there is an accident, the insured snaps pictures of the accident and furnishes his insurance companies with all the details officially and if it is on international waters there should be news on the incident, if police reports can also be generated, fine, when the insurer sees all these they can now take action, they send what is called loss adjuster, this are professionals that anywhere in the world have a network that can get information to the insurance company to confirm the authenticity of the claim and when this confirmation is done the insurance company pays.
What are the classes of vessel insurance?
There is clause A, clause B and clause C. and they have different covers, when it comes to cargo policy that covers all the risk of damage or loss, cargo clause A covers all, this is like the comprehensive cover, cargo clause B covers less than clause A, while institute cargo clause C covers the lowest, that is under marine cargo.
Under marine hull and machinery, the purpose of this cover is to protect the interest of the ship owner and this covers also has clause A which attract the highest premium and covers all risk, clause B which comes with a little less premium covers all risk with some exceptions and clause C is like the third party which only becomes active when there is a total claim, that means when there is a total loss of vessel and cargo. This means, if the ship capsizes and everything is lost, that is when the clause C claim comes in and pays everything. Ifs there is partial damage, the insurance company is not responsibility but if the cover is clause A if there is any damage the insurance company is liable.
Take for instance, there are some kind of cargo like frozen products that their temperature must not drop beyond a certain temperature if not it becomes contaminated, so under the clause A, if the goods arrived here but for some reason the temperature allows it to spoil the insurance company pays the claim under marine cargo.
People are mandated to insure their vessel but are skeptical to insure their vessel all risk here in Nigeria due to delay or outright nonpayment of claims do you think this reluctance is justified?
It is not really true, what you are talking about used to happen about 10years ago before the recapitalization of insurance companies in 2007, there used to a lot of mushroom insurance companies then but that is no more now. Also our regulator is always watching us to make sure that we pay claims timely. As far as the insured has done his due diligence by paying his premium up to date with receipts, he can even take it up with the regulatory body by filing a motion against the insurance company involved and they will take it up.
What is the regulatory body?
It is called NAICOM, National Insurance Commission.
What clause of insurance is most popular in Nigeria?
They usually do not do full cover here, they do like 40 percent here 60 percent abroad, most vessel owners do their all risk insurance abroad because they believe that they are better covered there.
Sometimes, it is because of the International Oil Companies (IOC) which mandates them to do it abroad.
How does government policy affect marine insurance?
It is Because of the Free On Board (FOB) we import on. If it is changed to Cost Insurance Freight (CIF), I can tell you that there will be a lot of employment in the insurance company and maritime industry as a whole. One of the effects of the FOB is that every vessel that carries crude to this country do not pay their insurance here in Nigeria, instead it is taken for FOB, but if this government policy changes it will get to a point that insurance companies will begin to buy banks as it is done in the western world but here in Nigeria the reverse is the case.
Also, another government policy that is seriously affecting insurance companies in Nigeria is the Central Bank Policy (CBN) that banned giving foreign exchange to 40 imported products in Nigeria. Now all the importers of those products take insurance policies, since that this policy took effect, there has been reduction in importation of those products and for some of the importers total decline to continue bringing in products, so it has affected our premium because there is total reduction in what is being covered from that side.
What class of insurance covers life of persons on a board vessel?
There three types called; Group life, Employment Liability and Group Personal Accident.
The group life is a compulsory insurance policy taken by the vessel owner to cover all crew members on board a vessel, the other two are also taken by the vessel owner for the staff on board in case of any eventualities, it covers even in the case of death and it is calculated based on their level of importance to the company.
This can be done here in Nigeria by Nigerian ship owners for their crew members under Group Personal Accident; this benefit covers any accident or sickness arising in connection with their employment. The scale of benefit generally payable, rates from; accidental deaths, loss of one or two limbs, eyes, permanent disability, temporary disability or medical expenses. Group Life covers death whether accidental or natural permanent disability and medical expenses whether at work place or outside the work place, it an extended cover.
How do you identify genuine insurance companies?
We have about 40 registered insurance companies under NAICOM, any other insurance company outside this 40 is fake, there is an insurance portal that serves as data records base for every genuine insurance policy taken in Nigeria, it is up loaded from various insurance companies, so that at the fingertips, the insured can ascertain if his policy is genuine or not. We started with motor insurance policies and we will soon be moving to marine and cargo. NAICOM and National Intelligence Agency (NIA) are working out the modalities of how it can be best done and we believe that before the year runs out the marine insurance will be on that portal.
Considering the cost of insuring a vessel how is the risk managed?
Every insurance company in Nigeria has its capital base and they also have a connection with a re-insurance company. The re-insurance companies are just two African Re-Insurance Company and Continental Re-Insurance Company. They have up to N25 billion as their capital base. When an insurance companies gets this type of policy they give some part out to the re-insurance company as backup because they cannot bear the risk alone and beyond that the insurance company allows their re-insurance department to give out some parts of the risk to other insurance companies that are interested. So that if there is a claim because of the capital intensive nature of marine insurance they can get the claim back from the re-insurance company and the other insurance companies that shared the risk with them.
How will you rate marine insurance when compared to other types of insurance in Nigeria?
It is very low, this is because a lot of our indigenous ship owners are getting low patronage from companies that can give them jobs like the IOCs and simply because they give more contract to foreign vessels, the foreigners give their insurance to their home countries, it affects our own insurance, so until indigenous ship owners get good contracts, that is when the insurance companies will also benefit maximally from the maritime industry.