Currency fluctuations creating inadequate marine insured values
The world economic crisis is playing havoc with currency exchange rates. The implications of significant fluctuations can be serious, particularly for shipowners, importers and exporters because their marine insurance may no longer cover them for the full amount in the case of loss or damage.
A recent Australian marine insurance claim involved the total loss of a key piece of machinery en route from the US. The importer received the claim payment but when the company reordered the machinery, the cost was 70% higher because of changes in the exchange rate. This was not covered by the importer’s insurance.
The importer suffered further; in addition to the higher re-order cost was the extra amount which had to be paid in interest to the bank that financed the original purchase, not to mention the loss of use (Loss of Profit or Consequential Loss) which his inexperienced insurance broker had forgotten to recommend.
For shipowners the warning is particularly stark. A hull fleet, which included some reasonably new specialist vessels, was insured in Australian dollars at last renewal (when the Australian currency was very close in value to the US dollar). A re-appraisal and adjustment had to be undertaken a few months later when the Australian dollar dropped 40% to around USD0.60. The Insured values were changed to US dollars and an additional premium paid. Fortunately, no losses occurred prior to the change so the insured was saved from what could have been a potentially damaging and costly situation.
The US dollar has recently become quite high in relation to some other currencies and this volatility must be taken into account if a shipowner or cargo interest is to be properly protected. Many marine insurance buyers who have not taken exchange rate fluctuations into account do not survive these types of disasters and are often forced into bankruptcy.
Specialist marine insurance brokers have seen these situations occur many times over the years and have the experience to assist marine insurance buyers, both in helping clients recognise the exposures and by placing specific covers on the most appropriate terms at competitive pricing.
Anyone one who is concerned about their Insured Values should talk to their specialist marine insurance broker to ensure, as far as possible, they have adequately provided for the possibility of future fluctuations. The costs to replace ships or cargoes when damaged or lost may otherwise be out of their reach.
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