Premium can be ascertained either by numerical rating system or by judgment method.
The numerical rating system evaluates each and every item and marks are assigned to them according to their merits and degrees of influencing risk.
Since the marine perils are varied, the only numerical rating system cannot be successfully utilized.
However, tabulation of statistical experience on many risks can serve the purpose as a basis of supplementary factors for underwriter’s judgment.
Marine insurance grants protection against a large number of perils which are viewed in relation to the inherent character of a large variety of subject-matter of insurance, the effects of season, adverse physical forces and trade customs, and the policy conditions.
Individual insurance account is used for personal valuation by a leading underwriter who enter into the making of marine insurance rates vary materially. The judgment and personal evaluation is very vital in rate making.
There are various factors to influence the risk. The management and ownership are very important factors while risks are evaluated for the purpose of rate making.
The following factors influence rate making of hull and cargo.
- Management: One management may be efficient in the upkeep of the vessel and the appointment of officers and crew. Other management, through negligence, indifference and undue economy, may show a bad record.To treat these managements alike would be an injustice to the better managed concerns. It would penalize efficiency and carefulness and put a premium on inefficiency and carelessness.
- Natural Forces and Topography: The underwriters consider the character of the route, the construction, type and the nationality of the vessel and conditions of the contract. Some natural hazards are permanent while others are of seasonal dangers.References are made to storms, submerged shoals, shifting sand bars, shallow water, narrow channels, ice, currents, tides and seaquakes while calculating the premiums to a particular route.Dangers from an underwriting point of view are associated with the ports of departure, call or destination. Some ports are known for insufficient depth, absence of good anchorage ground, lack of protection against tides or Tidal waves.
- Construction, Type and Nationality of the Vessel: The quality and fitness of the vessel to serve as a carrier on the particular route is naturally of the utmost importance.The underwriter wants to know the vessel with respect to its builder and owner, structural plan, material used in construction, type of propulsion, structural strength to resist stresses mid strains, adaptability to carry various kinds of cargo and its age and physical condition,In foreign countries, certain societies are formulated to promulgate rules for the construction of vessels, supervising such construction and assigning a class to each vessel.
The Lloyd’s Register contains information to numerous vessels of other countries, name and nationality of the vessel, materials of construction, details of the decks, the engine and boiler equipment of the vessel. Periodical changes are noted down there.
Nationality of the vessel is important to insurer because it discloses the dependence of the nations upon the ocean trade. The nationality reveals the skillfulness of the masters and crew, the rates may vary greatly as to the standard or commercial honor in trade, high standard and commercial ethics.
Premium rates are based on age of the vessel, propelling method body-structure, risks covered, distance for transit and nature of the vessel, tonnage capacities, port- classification and season of sailing.
- Policy Conditions: Innumerable clauses are used to limit or increase the underwriter’s liability. Some policies may cover against total loss. Some may cover partial losses. Others may relate only to general average or particular average.
The premium on cargo depends upon the following factors:
- Ownership: It may happen that two separate owner-ships of the same kind of cargo, carried on the same ship and to the same place will command different rates.Proper packing, profitable accounts and previous refusal of insurance may determine the rate.
- Character of the Cargo: The difference in hazard between various kinds of commodities, different forms of the same commodity, different shipments, and different types of packing and durability of the commodity may influence the premium rates.
- Hazards and Customs: The natural forces and topography considered in the case of ship are also considered in the case of cargo. The effect of seasons has important bearing upon commodities that are seriously affected by cold or heat.The season or climate at the port of destination may influence the risk. In certain season the port is busy with a particular cargo. Varying trade customs associated with the different commercial routes will influence cargo rates materially. The moral hazard is greater on certain routes.
- Quality and Suitability of the Vessel used as Carrier: The underwriters take into account the fitness of the vessel to carry the particular cargo. The premiums are higher in the case of ship cf slower speed due to longer exposure of the cargo. In case of highly perishable goods, moving in large quantities, special types of vessels have been designed to carry such commodities.
- Duration of Voyage and Policy Conditions: Insurers take into account the length of time. Sometimes, loading of the goods aboard the vessels and protection of the goods while on the dock are considered in calculation of premium.
- Miscellaneous Factor: The operating efficiency or proved experience of ship may affect the risk on cargo. The methods of handling and stowing cargo, the regularity of the service, etc., are the various factors to influence the premium rate.