MARINE INSURANCE CLAIMS IN SHIPPING

Ioannis A.Mavrakis,Technology Educational Institute (T.E.I) of Athens,Greece.

SUMMARY

This work deals with the marine insurance claims for hull and machinery.Initially,a brief outline of the present marine
insurance procedures is examined.Investigation is made of the ways in which marine insurance claims are determined by
examining the factors which influence the claims.The study proceeds to establish the claims for hull and machinery.The
ways of making a claim in the marine insurance industry are developed with the view of highlighting the key features.A
critical review is made of the existing approaches with possible simplifications and improvements.Following this,the
alternative ways of treating marine insurance are suggested,by interfacing marine insurance with design,production and
operation of ships.Finally,there are detailed propositions for futures improvements in the marine industry and insurance.

The following flow diagram would illustrate the present

1. INTRODUCTION procedures in the marine insurance market for rates and
claims.
Due to the nature of the marine industry with global
forms of transport,including the carrying of passengers TYPES OF COVER-ESTABLISHING THE RATES-
and cargoes in a vessel, which is often exposed to NEGOTIATING BROKERS-(Lloyd`s
hazardous weather conditions,as well as to human and Underwriters,Insurance Companies,International
mechanical errors in navigation,there is clearly a need Markets)-CLAIMS.
for some form of insurance to cover disasters at sea
which may result in loss of life and intense capital The different types of insurances which an owner may
investment. arrange on his vessel are: Hull & machinery, Increased
Value,Premiums reducing,Collecting Commission, War
Marine insurance has been developed over the Risks, Protection and Indemnity, Loss of earnings.(9)
years,and has not really been subjected to as much
scientific treatment as it deserves,and is full of jargons- The policy of insurance is usually subject to the Institute
special terms-this is one of the reasons why the subject Time Clauses and Institute Trade Warranties. The most
is so complicated.Therefore,it is required to common perils insured against which give rise to damage
review,clarify and examine the system,which has grown are fire, contact with piers, wharfs, quays, locks, etc;
up rather than been designed for a given situation. heavy weather, stranding, collision, striking on rocks or on
bottom, contact with floating objects, ice damage, and the
On the other hand,marine insurance is not well basic coverage afforded against the perils mentioned
understood by designers and in order to make better above is extended by the addition of the perils mentioned
ships closer co-operantion is needed with in the Inchmaree Clause and where applicable on certain
underwriters.Also more safety features should be vessels, by arrangement, by the Liner Negligence Clause.
incorporated into the design,bearing in mind the marine
insurance requirements. It should be noted that the collision clause contained in the
Institute Time Clauses forms a separate contract to the
2. A BRIEF OUTLINE OF PRESENT insurance on the vessel, so that the underwriters could be
PROCEDURES liable for a substantial claim under the collision clause, as
well as a total loss of the vessel.
The main object of marine insurance is to protect the
individual person or company against catastrophic loss, The Inchmaree clause does not cover the cost of repairing
and today the protection afforded against total loss is all or renewing a latently defective part, but only covers the
important in the financing of shipping and trade. As it cost of repairing or renewing other parts damaged in
can readily be appreciated, from the moment a consequence of the failure of the defective part.
shipowner takes delivery of a highly valued vessel, his
capital is exposed to the danger of the various perils of The Liner Negligence Clause, on the other hand, provides
the sea, thus his first concern is to cover himself against more extensive cover in that where an accident has
such perils, which occasionally may result in the total occurred due to a latent defect the shipowner recovers the
or partial loss of his vessel. cost of the latently defective part as well as the cost of
repairing damage to other machinery parts. Negligence of

Session D 1
master, officers, crew or pilots is subject to the 1.Insurable interest there must be an insurable interest;
provision that such loss or damage has not resulted therefore the shipowner loses by a loss or sinking and
from want of due diligence by the assured company stands to gain by the safe arrival or completion of the
owners or managers. Inevitably, the question arises voyage.
what is negligence?
2.Indemnity is according to the terms of the contracts.
Negligence is lack of proper care or attention or The assured has to prove its loss under his policy.
carelessness. If negligence is to be the grounds on
which a claim is to be submitted under the terms of the 3.Subrogation this means that the underwriters become
policies, the onus of proof remains with the shipowner subrogated upon payment of the claim only; that is, do
to show that loss or damage resulted from a negligent not get paid twice for one repair. Subrogation is on the
act. It is in-sufficient merely to claim negligence. underwriter after he has paid the damage, in cases of:a.
collision of vessels,b. cargo damage .
Negligence must be proved, and when it is proved it
must be interpreted in relation to the policies. The act 4.Good faith is essential in marine insurance, and
of negligence must be specific in its association with although underwriters do not survey vessels, evidence
navigation or machinery and when in relation to the must be available be means of annual and special surveys
latter it must only encompass such parts as are normally to prove seaworthiness.
incapable of functioning without each other. It should
be noted that lack of knowledge is not negligence and The ship must not misrepresent the facts or the contract
incompetence is not negligence. Each act of negligence may be null and void if a claim arises.
so specifically defined is subject to one deductible. Facts would be:
Each policy of insurance is subject to a deductible per
accident. a. the state of the ship or machinery;

3. MARINE INSURANCE BROKER b. deviation from the agreed trading area

without prior advice or notification;
The broker is the link between the assured or shipowner
and the insurer or underwriter. The parties to the c. the type of cargo that is hazardous
insurance contract, which is evidenced by the policy, cargo carried was different from that
are the assured and the underwriter. The latter may be a originally indicated.
Lloyds underwriter or an insurance company.
5.Causa proxima means trying to determine the
Although merchants sometimes prefer to deal directly dominating reason for the loss or damage. For example,
with companies, as a general rule a broker is employed, in the case of negligent or unskillful navigation, the loss is
and shipowners invariably use a broker to effect their regarded as caused proximately by perils of the sea, and
insurances. only remotely by the negligence or unskilfulness of the
master or crew, except in the case of a willful act or
The broker is an expert, well versed in marine insurance default of the assured.
law and practice. He is the agent of the assured not the
agent of the underwriter or company. By virtue of his
practice and his knowledge of the market, a broker can 4.2 MARINE INSURANCE IN PRACTICE
obtain much better terms for his client than the assured
could obtain himself. In marine insurance practice, there are convincing reasons
for the use of valued policies, those which agree as
The broker is subject to the ordinary law of agency and between assured and insurer a certain specified sum as
failure on his part to exercise reasonable care and skill representing the worth of the particular interest concerned.
in effecting the insurance and in securing a policy in In hull insurance this arises from the fact that the value of
accordance with his clients instructions may render a ship is represented not by the cost of building a new
him liable to an action for damages if his client is vessel, or the cost of purchase of a secondhand vessel, but
prejudiced thereby. by its earning capacity to the owner.

4. DAMAGE AND CLAIMS TO HULL & 4.3 INSURABLE INTEREST

MACHINERY
The importance of the principles relating to insurable
4.1 INTRODUCTION interest cannot be overestimated and are of the greatest
importance in dealing with claims, not only in respect of
The insurance contract, whether marine or otherwise, is marine transits, but also in respect of the ancillary transits
rooted in various principles. There are five principles before and after, and sometimes during the marine transit.
in marine insurance contracts, as follows: They offer less difficulty in matters of hull insurance,

Session D 2
except in respect of mortgages, hire purchase, etc, but Towage bills, Pilotage accounts, Fuel and engine stores
the principles must be borne in mind in dealing with account.
complex situations.
The above documents are of course incorporated in the
4.4 MEASURE OF INDEMNITY adjustment prepared by the Average Adjuster.

The current common hull clauses usually provide that 5. MAKING A CLAIM
the excess shall apply to all claims other than total or
constructive total loss and, in addition, that claims 5.1INTRODUCTION
under the Running Down or Sue and Labour Clauses
shall also be subject to the excess provision. The ways of claiming depend on the type of damage or
loss which takes place and the number of parties involved.
Only one deduction, however, is made in respect of all Also the processing of claims involves the following
the claims, whether Particular Average, General people as shown in the diagram.
Average, Running Down or Sue and Labour Clauses,
arising from a single casualty. Shipowner or Owners Representative

As an example, the following figures are considered:

Insured value=150000E Surveyor Broker Adjuster
Sound value=120000E (Salvage Associationor Independent
Damaged value= 60000E
The depreciation should be assessed by deducting the
damaged value of the vassel from the insured value. Underwriter
That is : Depreciation = 150000E-60000E=90000E
When a damage occurs the shipowner has to inform the
broker and he in turn the underwriters, for the type, date
4.5 VARIOUS EXPENSES and place of the casualty. Then, the underwriters will
appoint a surveyor, who will survey and estimate the
There are a number of expenses which may occur extent of the damage.
during the damage repairs:
a. Temporary repairs 5.2 PERSONNEL REQUIRED
b. Overtime
c. Dry-docking As well as the superintendent and the surveyor it will
d. Gas-freeing greatly help matters to have present at the initial survey:
e. Increase in repairs
f. Rates of exchange 1. A surveyor of the appropriate Classification
Society if damage affects class.
4.6 DOCUMENTS OF HULL & MACHINERY
CLAIMS 2. A manager of the repair contractor if repairs are
to be done immediately.
The documents required in the event of claim should
always include the policy. In the case of a total loss
actual or constructive this will normally be retained 3. Such deck or engine room officers as are required
by the underwriter, but where under a hull policy for to assist with their knowledge of the ship and/or
instance, there may be another claim under the running the casualty.
down clause; the assured is entitled to demand its
return. In any case the policy will be endorsed to show If the damage is to the hull of the vessel, drawings should
the payment made. be on hand so that plates, frames, etc, can be correctly
designated. Only too often dispute arises as to the
Where the owner is resident abroad a payment order location of damages carried over from one survey to
will be required authorizing the insurer to pay the another because of differing methods of designating plates
broker. If there is a note of any assignment or mortgage and frames.
endorsed on the policy, the insurer should satisfy
himself that payment is being made to the right party. 5.3 NOTIFICATION OF DAMAGE

In general, the following are the required claim There are various ways in which a damage is notified.
documents:
1. Whenever an accident occurs involving his vessel
Notice of abandonment, Protest and extended protest, or his vessel and another vessel and/or other
Log books, Survey reports, Tenders, Repairs accounts, property, the Master must notify the shipowner

Session D 3
 and/or ship manager giving all the essential 5.6 PAYMENTS ON ACCOUNT
details.
If, during the course of repairs, payments in advance of
2. On receipt of the details of the damage the final account being submitted are required, it is well
sustained or damage done or both, the ship that the Superintendent gives ample notice to the surveyor
manager will arrange for the attendance of the that such a request is imminent so that he can assess the
underwriters surveyor as necessary. In an cost of repairs already satisfactorily completed, thus being
emergency, or to avoid costly delay to a in a position to advise underwriters when asked to do so.
vessel, underwriters surveyor may have to be
called in by the Master before notification is 5.7 APPROVAL OF ACCOUNTS
sent to the ship manager, in which case the
Master should contact the surveyor through the An essential part of the survey report is a detailed
vessels agent. explanation of the costs involved in the repairs with clear
subdivision of the sums involved against the various
casualties being dealt with in the report, as also an
3. At regular dry-docking or special survey the itemized General Expenses account.
attending superintendent will have details of all known
outstanding damage repairs and underwriters surveyor The time taken on each individual case as also the dock
will be in attendance as necessary. In the event of time, if dry-docking was necessary, for each repair must
further damage being discovered in the course of the also feature in the survey report. To enable the surveyor
survey, the superintendent will notify the ship manager to supply this information close liaison is required
immediately and thereafter the Masters report, between him and the Superintendent on this important
together with extract of log, should be submitted to the matter and so free discussion should take place between
ship manager in accordance with the afore-mentioned these parties.
reporting procedure.
5.8 ADDITIONAL COSTS
5.4 CONDUCTING A DAMAGE SURVEY
As well as the repairers account there may be other
The owners superintendent is virtually, for the purpose accounts which should be brought to the surveyors
of the survey, the shipowner. He is stating the claim attention for approval and inclusion in his report; these
(this may be altered in form later by the owners claim costs are for:
manager or the Average Adjuster but not in technical
fact or detail), and he is the only one who can authorize 1. sub-contractors accounts not included in the
repair work to be carried out. repairers account, eg, tank cleaning, boiler
cleaning, painting, etc.
The surveyor may agree to the proposed repair or even
recommend a certain course of action, but they have no 2. supply of replacement parts from owners stock
authority whatsoever to instruct a repairer to carry out or suppliers.
repairs.-see Appendix A.

5.5 PROGRESS OF REPAIRS 3. work done by crew in respect of the repairs. This
can be a very contentious point and so should be
As the work progresses further surveys may be well documented and explained.
necessary and, while the surveyor will from time to
time revisit the vessel or the place of the repairs to The additional cost incurred by working overtime over the
satisfy himself on various points, it is the cost, had the repairs been carried out in normal working
superintendents duty to advise the surveyor time, should be agreed as also the time saved on each case
specifically if the scope of work on the claim is due to such working.
expanded from that of the original agreement.
6. CRITICAL REVIEW OF EXISTING
This is a great cause of dispute which can easily be APPROACHES
avoided if the superintendent will notify the surveyor in
sufficient time to arrange the required additional survey 6.1 THE ROLE OF THE BROKERS
if considered necessary, without undue delay to the
repairs. The superintendent should not wait until the Coming now to the services provided by the marine
surveyor makes an occasional visit but should make insurance brokers; it is known that when in business in a
sure that he is aware that further survey is required. very competitive market the engagement of a broker is to
the benefit of both parties concerned, and almost in all
such cases when business is negotiated there is one broker
on either side. In the marine insurance market where

Session D 4
competition is of a limited nature the present practice of 7. POSSIBLE ALTERNATIVE WAYS OF
involving one broker to protect the interests of the TREATING MARINE INSURANCE
assured should be changed, so that the broker be
incorporated in the shipowners office, in big shipping 7.1 BETTER SAFETY FEATURES
organizations, rather than act independently, thus
increasing the operating costs for the owner who could An alternative way of improving marine insurance claims
benefit as he has done in the case of a resident marine is to build in better safety features; for instance, life-boats,
superintendent or port captain, etc. fire-fighting equipment, electronic equipment, computers,
etc., depending on, of course, the new type of vessels, the
By doing so, the owner would some closer to the new cargoes transported by them, their trading areas and
underwriter lifting the present barrier separating the two the possible hazards, in order to avoid the event of
for their mutual benefit; that is, better rates, speedier collision and/or fire damage, which may result in a actual
settlement of claims, and most important personal or constructive total loss of the insured unit.
contact, thus preventing certain owners from taking
advantages of their underwriters hiding behind their 7.2 INTERFACING DESIGN, PRODUCTION AND
broker. OPERATION

After examining the marine insurance procedures, it is

6.2 CLAIMS PROCEDURES essential to present to the designer predominant designs,
production and operation factors, which he should take
Claims in general can be broken down under separate into consideration in the preliminary stages when
headings as follows:Total loss, Partial loss, General designing a new vessel. This should be done in
average charges, Sue and labour chargls and War conjunction with the feed-back of information from the
risks,Partial loss, General average charges,Sue and marine underwriters experience from the claims side of
labour chargls and War risks. the business.

War risks at the present time are insured separately in a.Feed-back of Experience in a Systematic Way
any case, and this might well point the way to a slightly
different approach to the general question of marine In order to interface designs, production and operation of
insurance in that the remaining categories mentioned ships with marine insurance, a more systematic way of
above might well be rated and administered separately feed-back of experience gained from the underwriters, the
as follows: Salvage Association surveyors and from independent
surveyors, who act as agents of the underwriters around
1. Hull & machinery (total loss) the world is of paramount importance.
2. Partial loss
4. General average expenses, salvage, and sue As in the case of Classification Societies, which
and labour charges. accumulate experience during the various surveys carried
out and is fed back to the shipbuilders. This will be for
On the claims processing side present practice is the benefit of all concerned such as the designers,
employing rather anachronistic methods and to take operators and underwriters.
exception to one, that of the Average Adjuster. His
intervention as an independent person or body in actual b.Design
fact, although his work is necessary in order to find the
total amount of money an owner is entitled to receive From the design point of view, the following must come
due to a claim of an insured risk, his occasional heavy into consideration:
programme may delay one adjustment for a period of
time which might jeopardize the interests of the owner. The risk of collision can be reduced by the provision of
adequate and effective navigational aids and by good
Further in many occasions the parties involved by bridge layout. A computerized black box system,
employing delaying tactics in corresponding with the similar to the one used on board aircraft today, should be
adjuster protract payment for obvious reasons to their fitted on all vessels, which will record all the manoeuveres
benefit. It should also be mentioned here that many carried out on board; thus in the event of a major accident
times in the past an adjustment has not gone through collision, grounding, total loss, etc. useful information
when presented to the underwiter irrespective of efforts will be made available.
by the broker involved, who once again in most similar
cases is delaying the post between the underwriter and A new ducted propulsion system with a new steering
the owner. system should be considered to cope with the problems of
manoeuvring and control of vessels working in restricted
waterways, where depth and breadth are critical factors, as

Session D 5
well as in cases where ice and floating hazards involve The human nature aspect comes into this too, as with
vulnerability of exposed propellers outside of the hulls. dials to look after things, the crew may not look after the
ship properly.
Also the arguments for and against two engines should
be considered. The running cost is obviously going to Computerisation is helpful in loading, but computers are
be nearly double the cost of one engine, and the owner expensive, and the main damage done during loading is
may be prepared to pay for towing in the event of due to crew negligence in overloading the ships gear and
damage. The argument for two engines is that if one causes some damage which cannot be prevented by the
breaks down, the other can be used to make to port. computer.

The structure of the ship for example, longitudinal or It is evident from the above that there is a need for feed-
transverse framing will affect the claim on any back of information and a close co-operation between the
damage or collsion prevention of pollution should be various parties involved, that is, shipowners, designers,
considered, especially in the tanker class, by shipbuilders, ship managers, marine brokers, surveyors
strengthening ship hulls and diminishing the risk of and underwriters, in order to design, produce and operate
spillage as a result of stranding or contact damage. ships in the most effective way and to improve the
existing practice for the benefit of all concerned.
The design does not directly affect the insurance rates,
for the underwriter does not look at the design features, 8. RECOMMENDATIONS FOR THE FUTURE
but it obviously affects the claims to an extent when
there is damage or collision and these in turn the rates. 8.1 USE OF MATHEMATICAL TOOLS

Designers, underwriters, surveyors and class surveyors a.Type of information required

must get together to exchange reliable information to
improve design, production, operation and insurance of In order to use mathematical tools it is necessary for the
a vessel, as all these go towards the operating cost and information to be gathered on a world-wide basis, as
the shipowners must know about these aspects too. follows:

c. Production 1. The total losses by tonnage over a period of years

2. The loss ratios over a period of years.
From the production point of view consider the 3. The loss ratios by type of vessel over a period of
following points: years.

The speed of repair and the close proximity of a repair 4. The loss ratios by type against actual and
yard is essential as this helps the insurance rates ad far constructive total loss over a period of years.
as the turn-round time is concerned on a particular
voyage from the insurance point of view; the longer the
ship is in the repair yard, the more expensive the repair 5. The loss ratios by age and type over a period of
is going to be, so it must always come back to ease and five years up to twenty-five years.
low cost of maintenance and repairs.
6. The loss ratios by age an type for actual and
Ease of repairability is essential as far as standard constructive total loss over a period of years.
plate is concerned. It is impossible to allow for this as
no-one knows here or when a ship will need to be
repaired. 7. The loss ratios by size, age and type in five years
steps.
d.Operation
8. The loss ratios by size and flag for a period of
From the operating point of view, the following must be years.
considered:

The type of machinery has to be looked at more fully, 9. The loss ratios by size and flag of convenience.
so that the crew know how to handle the machinery.
10. The loss ratios by type and the type of machinery
Automation should be considered in its place in new damages. References (1), (2), (3), (4), (5), (6), (7) may
designs for instance, there are two ships, one of which provide useful guidance in this area.
is automated.
When this information is compiled, the following could be
seen:

Session D 6
The total loss tonnage can give us the amount of money Fire and explosion should be shown separately because
paid back to the owners so a cost analysis would be exact information as to the cause of the outbreak is often
essential. Also to investigate the increase or decrease in difficult to obtain.
the total loss over the years.
With this type of information it will be possible to
The loss ratio is the ratio of tonnage lost over the establish the factors which affect the loss ratios, if it is:
tonnage afloat. It is worthwhile to investigate the a. The type of vessel
reasons for any deterioration in total loss with b. The size of vessel
references either to type, size or age. c. The flag of vessel
d. The age of vessel
In finding out the trend of actual or constructive total e. The trade of vessel
loss for the ship types it can be seen if the existing
practice of marine insurance is correct or not as, for Also it will be possible to investigate the cause of loss and
example, the introduction of the fifteen-year age which losses are more frequent than others for a specific
limitation by cargo underwriters in the Classification type of vessel; for instance
Clause.
- Collision/contact
If there is a rise in the overall ratio, this is a direct - Heavy weather and sinking
reflection of the fact that, due to inflation and the - Fire/explosion
changes in currency, damage repair costs could reach - Stranding
the insured value of that particular type of vessel. So, if - Others
the insured value of a ship is not increased at the same
pace as the cost of repair at the shipyards and in the From these losses it is better to separate the ones which
countries where that ship is likely to be repaired after an resulted in an actual total loss, from those of
accident, there is a greater likelihood of constructive constructive total loss of the vessel.
total loss; since, constructive total loss increases hand
in hand with the increasing cost of repair. It is obvious from the type of information required that the
use of statistics is of a primary importance in order to be
A casualty analysis could show the percentage of loss able to analyse the problem, that is, to investigate the
ratio in respect of vessels and the causes, for instance, cause of loss and then assessing the risks in a better
fire and/or explosion in cargo tanks as in the case of manner. This would aid the designers to improve new
tankers. By doing that the problems associated with designs and the underwriters to set aside the money
these damages could be investigated, as in tankers these required for reserves for the coming year (s).
damages were due to tank size and this could give to
the underwriters a better guide when rating a new type Statistically, the total loss ratio from the insurance point of
of vessel and to the designers the problems involved. view must be investigated, as there are many instances
where the ship sinking following a collision could perhaps
The trend, when the size of vessel reaches a critical have been avoided, eg, double-skin hulls, etc.
age and when it is uneconomical for the shipowners Since all risks are composed of two factors:
and under-writers, could be seen. It becomes, therefore,
of some importance to analyse the reasons if there is a a. the probability of an accident or incident of loss
marked deterioration in total loss once the vessels b. the extent of the claim when an accident does
exceed fifteen years of age. occur it is evident that a comprehensive use of probability
techniques will be a new mathematical tool to the
underwriters for their use in new rating of risks.

b. Use of Statistics
c. Possible Analysis Techniques
By classifying the casualties into groups, it is necessary
first of all to have statistics on the casualties, such as: Insurance cost is an annual cost, so a possible analysis
technique is a cost analysis of all the operation costs
1. Human failure: a. Stranding, b. Collision, c. along with the cost of insurance. So, in the preliminary
Contact. stages of the optimum design, a cost optimization analysis
technique is needed.
2. Ship failure: a. Heavy weather, b. Sinking, c.
Leakage. From Fishers paper (8), the total annual cost is equal
to:Total annual cost = Hull & Machinery insurance +
3. Fire/explosion Protection and Indemnity insurance + Hull &Machinery
Maintenance + Crew + Stores& Supplies Costs.

Session D 7
But the Hull & Machinery cost =function (% dwt or
G.R.T. % Insured Value or Building Cost). b. Lack of Communication.

It could be seen from this formula that hull & For instance, for better propulsion machinery and
machinery insurance cost could be expressed as a steering gear, the owner should get better rates than one
function of the design parameters. So, insurance cost is who has not.
a cost parameter in the ship design.
It is obvious from the above that this close co-operation
The cost analysis should be carried out on different could be effective by having more joint conferences on
types of ships and see what the similarity is between common subjects; for example, at least twice a year, with
them, if any, and to be able to ascertain what percentage the following participants: shipowners, designers, ship
of the overall total annual costs to applicable to marine manageres, surveyors, shipbuilders, ship repairers, marine
insurance. brokers, underwriters, adjusters, lawyers and scientists
from universities, such as: mathematicians, naval
Also, to be able to find how the rest of the design architects, marine engineers, etc.
parameters such as L, B, D etc. vary with the cost of
insurance. So that a more reliable formula for Only in that way something more constructive can be
estimating the annual premium could be found and achieved, and so marine research can be carried out more
therefore to be able to use formula derived from effectively with better feed-back of information for new
analysis rather than from empirical ones. fields. By this method the marine insurance system would
be treated in a scientific manner in order to be in line with
This cost analysis technique should be able to allow the advanced marine technology in an ever changing
evaluation of the break-even costs to alter boundary industry like the marine industry.
conditions applicable to the design and operation of the
vessel. In some instances it may require technological c. Brokers position Conflict of Technical and
advances, but for others it may necessitate breaking Financial Expert.
psychological barriers on the part of the owners,
operators, shipbuilders and underwriters. Also the education and training of masters, officers and
crew should be kept up to standard in qualifications and
It appears clear that the application of the cost analysis experience, and to be used by the operators in the proper
technique, in conjunction with the design parameters at way each one to do a job which he is qualified for and
the preliminary design stage, can benefit the marine not to have a vessel which is to be served by thirty crew
industry, but precise use of these techniques awaits the members and only fifteen on board, as is often the case,
supply of data from owners, operators, shipbuilders and out of which ten of them have the appropriate
underwriters. Their frequent reluctancy to make them qualifications to sail on that vessel.
public is sometimes understandable, but is not always
justifyable. This education and training will enable them to
communicate with the rest of the people involved in the
8.2LIKELY DIFFICULTIES shipping industry, like shipowners, marine surveyors, etc,
and at the same time to minimize human errors in
a.Lack of Reliable Information. operation.

Due to these difficulties in securing reliable information Finally, marine insurance should be taught at universities
it is not possible to compare the loss ratios due to in the marine courses, so that a qualified naval architect or
human failure caused by crew negligence, as with marine technologist knows something about the insurance
ship failure and so to find the percentage of loss side of the business. This will enable them to
ratios. communicate better with the different people involved in
the marine industry.
Reliable information would aid to find the relationship
between cause and the incidence of constructive total
losses. If within an overall ratio a similar increase is 8.3 INTRODUCTION OF INNOVATIONS
being reflected in constructive total losses, this must
mean that each incident is also becoming more The owner could place the risk with the underwiters by
expensive in terms of the insured value. the use of desk computers. Also computers must be used
as an aid to the marine insurance industry, in conjunction
It must also mean that unless values are increased in with the techno-economical information, so that before a
proportion to the size in the cost of repairs in the new vessel or unit is built, the owner could ascertain his
currency of the policy, the cash cost of claims is insurance cost and help him to make the right decision
proving more expensive in terms of rate of premium before purchasing and insuring a new vessel or unit.
not only for total loss but also for damage risks.

Session D 8
Attention also should be drawn to all concerned that the
designer is employed by the operator with a view to 10.ACKNOWLEDGMENTS
building an economical ship which will turn out a
bigger profit, since the nature of the business man is I wish to thank the Department of Shipbuilding in the
always how to spend as little as possible on items which School of Applied Technology and the board for directors
do not return a profit. of Technology Educational Institute ( T.E.I.) of Athens,
Greece, for their encouragement and support to present
The burden of research and the responsibility of safety this paper.
devices and other structural features on-board all
vessels should be undertaken by the underwriters and 11.REFERENCES
all recommendations be made without relaxation on
existing vessels, without resistance from operators with 1.BEER,W.J.,
large volume of tonnage, and to be applied with a firm Analysis of World Merchanical Ship,Losses,Transactions
hand against all ships likely to pollute the seas for gain R.I.N.A.
and without thought for environmental considerations. 1969, January, pp 97.

On the other hand, the Classification Societies should 2.MONLEY,C.V.,

not act as independent bodies, but be incorporated A Further Study of ship Losses, Transactions R.I.N.A.
directly with the marine underwriters; thus the present 1959, Vol. 101, pp 337
trend of competition between the Classification
Societies would be averted to the benefit of all and not 3.
the benefit of the few. Conference of International Union of Marine Insurance,
1971, September ,Brussels.
Thus a multi-national organization of competent
surveyors directly dependent on the underwriters to 4.
classify, supervise and maintain a high standard of Conference of International Union of Marine Insurance,
classification of all vessels, independent of nation and 1972, September, Sttockholm.
management, would work according to rules which
would be drawn up by the owners and the underwriters. 5.
This body would be based upon the present Salvage Total Loss Element, Post Magazine and Insurance
Association arrangement or some similar form to be Monitor,
founded. 1973, March 22nd, pp 2293.

6.
9. CONCLUSIONS Conference on International Union of Marine Insurance,
1973, September, Venice.
Based on the work carried out in this paper the
following conclusions are considered appropriate: 7.
Conference on International Union of Marine Insurance,
1.A planned maintenance programme of all machinery 1974, September, Berlin.
is essential together with close supervision of surveys
as they become due. 8.FISHER,K.W.
The Relative Costs in Ship Design Parameters, Naval
2.The supervisory element cannot be over-emphasised Architect,
and the quality of superintendent engineers and marine 1974,July, pp 129.
superintendents must be of the highest possible order.
It is also helpful to have efficient and trustworthy crew 9.MAVRAKIS,I.A.
members with long term service. Marine Insurance Rates From The Point Of View Of The
Naval Architect,I.M.A.M
3.The marine insurance industry should be integrated 1977,November, pp 10.3 Vol II
more fully with design, production and operation of
ships in order to improve effectiveness for the benefit
of all concerned.

4.The shipowner could carry his own insurance if he

has the funds to do so or he could join a mutual club of
established shipowners or a company, such as a
captive insurance company. He also could carry part of
any of the risks himself up to a limited amount,so that it
does not affect his cash flow problem.

Session D 9
APPENDIX A-EXAMPLES OF underwriter will pay 2,550E+17,700E+8,850E which
APPORTIONMENT HULL CLAIMS equals 29,100E and the shipowner 18000E.

1.The cost of entering and leaving drydock is 2.The introduction of an excess provisions into hull
900.Dock dues are 300E per day.The damage is by policies results in a further complication,since although
heavy weather in each case.The insured value is repair results from a loss insured against, the claim
150000E.Cost of owner`s repairs 15000E. requiring including the due proportion of drydock dues, may not
four days in drydock. amount to the excess.Thus, as a simple example:

Cost of Damage Repairs A vessel enters drydock for routine maintenance and for
1st casualty 3000E requiring 3 days in repairs to two casualties for underwriters account.The
drydock former requires an expenditure of 15000E, the latter
2nd casualty 18000E requiring 4 days in respectively 6000E and 18000E. The cost of dry-docking
drydock is as shown on the previous example and requires
3rd casualty 9000E requiring 3 days in respectively, 3 days, 4 days and 4 days (owner). Owner`s
drydock repair cost 15000E.The excess in the policy is 7500E.
The excess under the Institute Time Clauses is 750E,
that is all claims are are recoverable, subject to that Apportionment:
excess. 1st 2nd

Repairs for owner`s account immediately necessary for casualty casualty

seaworthiness are effected concurrently with damage owner
repairs.All repairs require dry-docking.

Owner`s repair
15,000
Apportionment: 1st cas. repair 6,000
1st 2nd
2nd cas. repair 18,000
3rd
3rd cas. repair
casualty casualty Cost of entering
casualty owner and leaving dry-
dock 150 150
450
Owner`s repair Cost of 3 lay days
15,000 (common to all=900E) 150 150
1st cas. repair 3,000 450
2nd cas. repair 18,000 Cost of 4th lay day 150
3rd cas. repair 150
9,000
Cost of entering Total Cost 6,300 18,450
and leaving dry- 16,050
dock 150 150 Less excess - 7.500 - 7,500
150 450 -15.000
Cost of 3 lay days
(common to all=900E) 150 150 Net Nil 10,950E
150 450 1,050E
Cost of 4th lay day 150
150

Total Cost 3,300 18,450

9,300 16,050
Less excess - 750 - 750
- 750 - 2,250

Net 2,550 17,700

8,850 13,800

It should be noted that 50% of the common dues only

shall be borne by the shipowner. Therefore the

Session D 10