Different Types of Marine Losses

The export business has been a major contributor to India’s GDP. According to the Reports, Indian exports registered a growth of 4.77% as compared to August 2024. However, with the increased transportation growth, the damage has also increased significantly.

Thus, to reduce financial liability, invest in marine insurance to ensure maximum financial protection during the event of damage caused during your voyage. Continue reading this blog to know more about the types of marine losses and how having marine insurance can help you in unexpected scenarios.

What are Marine Losses?

Marine losses refer to financial and material losses to cargo, vessels or other properties during sea, air or inland waterway transit. These losses can occur from various risks such as accidents, natural disasters, piracy and theft.

However, marine losses are broadly classified into four categories, which are explained below.

What are the Different Types of Marine Losses?

Total Loss

This is the first type of marine loss. As the name suggests, total loss refers to a situation where the insured cargo loses 100% or nearly 100% of its value. This category is further divided into two subcategories: Actual Total Loss and Constructive Total Loss.

Actual Total Loss:

1. A vessel or cargo has been destroyed or completely lost. For instance, due to a topical natural calamity.
2. The cargo has been severely damaged, and repair is not feasible. For instance, due to any storm.
3. The insured cargo or the goods are positioned in a place that cannot be accessed.

Constructive Total Loss:

1. The insured cargo is not entirely damaged; however, it cannot be restored to its original state without incurring costs that exceed its value.
2. You can only access the good by paying more than its value. For example, your ship is stranded on a remote island which can still be accessed.
3. When you abandon the insured goods or cargo because repairing them is not worthwhile. For instance, your ship is stuck in a war zone which is escapable.

Partial Losses

Partial losses refer to a situation in which only one part of the insured cargo is affected or damaged. This type of loss decreases the value of the vessel; however, it does not completely damage the goods.

Similarly, partial losses are also divided into two parts: particular average loss and general average loss.

Particular Average Losses

1. Particular average losses affect only one party involved in the marine venture. It happens when the damage caused by the insured peril is not shared with other parties

For instance, a bag full of cotton is damaged due to seawater caused by the ship’s mechanical dysfunction.

General Average Losses

2. This type of loss is counted when the goods are damaged deliberately to avoid a certain danger.

For instance, when transporting cargo from India to Australia, some cargo needs to be discarded to prevent the ship from sinking. In this situation, your insurer will only compensate for the contributed rate determined by the average adjuster.

Here is a more detailed breakdown to help you understand this marine loss.

Value of the ship: ₹100 lakh

Value of the cargo: ₹300 lakh

Value of the freight: ₹40 lakh

Thus, the total value of all the parties' interests includes - 100+300+40 = ₹440 lakhs

The contribution rate is

Shipowner: ₹100 lakh \ ₹440 lakh =  22.7%

Cargo Owner: ₹300 lakh \ ₹440 lakh = 68.18%

Freight Owner: ₹40 lakh \ ₹440 lakh = 9.09%

Suppose the average adjuster determines the general loss average to be 50 lakhs; therefore, the share of the loss of each party would be

Shipowner: ₹50 lakhs x 22.7% = ₹11.35 lakhs

Cargo Owner: ₹50 lakhs x 68.18%  = ₹34.09 lakhs

Freight Owner:  ₹50 lakhs x 9.09% = ₹4.54 lakhs

Moreover, apart from these, there are other types of marine losses, and these are

Cargo Loss and Damage During Transit

Cargo loss is identified as the damage to the cargo during transit, transported by sea, or caused by any natural calamity. Based upon the severity of the damage, cargo loss is further categorised as partial or total loss.

Loss Due to Theft

Piracy and theft pose significant threats in certain parts of the world. Ships carrying oil, electronics and other imported goods are prone to attacks and loss of goods due to theft.

Piracy and theft-related loss can be life-threatening. Thus, secure yourself from marine losses by purchasing marine insurance from Bajaj General Insurance and get fast and hassle-free claims.

Importance and Benefits of Marine Insurance in Marine Losses

Marine insurance is important because it provides comprehensive financial protection to cargo owners, businesses and shipowners against any risk that may arise during the transportation of goods. Furthermore, it helps you mitigate potential losses that can arise suddenly due to accidents or natural disasters.

Some of the key benefits of Marine insurance are:

1. Protection against financial loss.
2. Risk management
3. Safe transit
4. Agreed value policy

Eligibility Criteria to Apply For Marine Insurance

Registered Vessel or Cargo

One of the major marine insurance requirements is that you have a registered vessel or cargo to be used for the transportation of goods. Therefore, to purchase marine insurance, you need to provide proof of ownership.

Reason for the Voyage

Secondly, you need to provide the reason for your voyage along with the correct documentation supporting the shipment of cargo. This is essential for accurate risk analysis; your insurer needs to know the purpose of the voyage.

Types of Equipment Installed in the Vessel

Third comes the types of safety equipment you have installed in your vessel or cargo. It is also important in marine insurance because your insurance premium will depend on the quality and quantity of the cargo.

Experience and Expertise

Lastly, you need to show proof of your experiences and expertise in the mode of transportation you are operating. This is a major requirement for marine insurance, as a lack of expertise can also lead to accidents.

If you own a vessel or cargo, buy marine insurance online today from Bajaj General Insurance, and get comprehensive coverage.

Final Thoughts

Marine losses can occur anytime during a voyage, and investing in marine insurance is the smart choice that you can take at this moment to protect your business and yourself from any financial losses.

When you understand the types of marine losses and the type of marine insurance you require, you can carry out the voyage with peace of mind. Bajaj General Insurance offers four different types of marine insurance depending on your needs. Thus, secure your next journey by adding an extra layer of protection and a financial safety net.

Frequently Asked Questions

What is a single transit policy in marine insurance, and who should purchase it?

Single transit policy in marine insurance refers to a coverage specialised for cargo or vessels for a single journey. For small to medium-sized businesses or those with high-value cargo, a single transit policy is the best option.

What type of insurance is marine insurance?

Marine insurance refers to the insurance policies that provide coverage against any risk that occurs during transit. It covers risks such as theft, accidents and natural disasters and is necessary to protect against these risks.

How is loss calculated in marine insurance?

The loss is primarily calculated by dividing the value of your interest by the total value of all parties involved in the marine venture. The calculation, however, is based mainly on determining the average total loss.

What are salvage charges in marine insurance?

Salvage charges in marine insurance refer to the cost incurred to save a ship or cargo. Moreover, the charges must be paid to the salvors who help in rescuing the goods, and insurance covers the charges.  

Who decides the category of marine loss?

The insurance company determines the category of marine loss. The insurance company appoints a surveyor to verify the loss and quantify it further. Additionally, an average adjuster determines the final contribution rate for each party.

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making any related decisions.

Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms, and conditions, please read the sales brochure/policy wording carefully before concluding a sale.