Tagged: claims, General Average, insurers, losses, salvage, ship valuation, shipowner, underinsured

This article was published in Asia Pacific Shipping, April 2006.

Andrew Brooker, Associate Director of FP Marine Risks, a leading marine insurance broker based in Hong Kong, explains: “The S&P market can have a huge impact on the ability of shipowners to receive full reimbursement from their insurers in the event of certain types of loss, specifically a salvage, general average incident or total loss.  Unfortunately, many assureds don’t realise this until they come to make a claim”.

The science is simple – for example, a vessel valued at USD2.1million and insured accordingly could see its market value rising to USD3million as a result of a buoyant S&P market. If the valuation on the insurance cover is not adjusted accordingly, the assured could find themselves having to meet the additional costs.

Andrew says: “For example, if a vessel has to be towed to port as a result of an accident or breakdown, salvage charges are payable from both the ship and cargo.  However, if a vessel is underinsured, the amount of reimbursement the shipowner will receive from the insurer for these charges will be reduced by the same proportion that the ship is underinsuerd.”

It is up to the assured to advise insurers of any changes in the value of their vessel.   “We recommend that shipowners keep an eye on the S&P market and speak to their insurance broker if they believe there have been significant changes in the value of their vessel,” Andrew continues.

And for those who are thinking the easy solution is to overinsure, unfortunately the insurer may refuse to accept the increase in value and demand proof by way of an independent valuation.

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