Hull Underwriting Factors Figure out what hull & machinery insurance are all about!

1. By Sofia Naznim

2. Process of evaluating the risk that
the ship owner's might face in the
marine activity. They decide how
much coverage the client should
receive, how much they should pay
for it, or whether even to accept
the risk and insure them.
Underwriting involves measuring
risk exposure and determining the
premium that needs to be charged
to insure that risk.
The function of the underwriter is
to protect the company's book of
business from risks that they feel
will make a loss and issue
insurance policies at a premium
that is commensurate with the
exposure presented by a risk.
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3. To protect the shipowner’s
investment in the ship. It is
basically a property
insurance which covers the
ship itself, the machinery
and equipment.
The owner will be
protected for losses caused
by loss of or damage to the
ship and its equipment.
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4. The volumeof
premiumsreceived
must be sufficient to
pay for repairs
Cost of repairs have
been affectedby
inflation whether
vesselis new or old
The rate must
provide a fund for
total loss and
liabilities
Sound quotation can
only be given with
the assistanceof
detailedpast records
To evaluateand
asses the risk that
the ship owner might
face
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5. SNH ©

6. BULK
CARRIER
OIL TANKER
REFIGERATED
CARGO
CARRYING
VESSEL
LIVESTOCK
CARRIER
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7. LNG
CARRIER
CAR
CARRIER
CONTAINER
CARRIER
HEAVY LIFT
CARRIER
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8. Carrying raw dry cargoes in
huge cavernous holds, such
as coal, iron ore, grain,
sulphur, scrap metal
Bulkers range from about
25,000 Deadweight tons
(handy size) through the
medium size (Panamax)
vessels of about 75,000
DWT, to the giant (cape size)
vessels of up to 200,000
DWT
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9. SNH ©

10. The crude carrier - carries
crude oil
The clean products tanker -
carries the refined
products, such as petrol,
gasoline, aviation fuel,
kerosene and paraffin.
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11. Refrigerated Cargo Carrying
Vessels (Reefers) are purpose
built to carry fruit, meat and
other food products across the
sea in a fresh and clean manner
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12. The carriage of live animals around
the world is performed by specialist
vessels, designed (or adapted) to
transport large numbers of cattle
and sheep in secure but humane
conditions.
This transport of live animals
requires experienced and specialized
operators. The dangers of disease,
rejection, injury and death to and
from the animals is particularly high,
coupled with the current activities of
animal rights activists.
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13. SNH ©

14. The LNG carrier (Liquefied
Natural Gas) and it's cousin
the LPG carrier (Liquefied
Petroleum Gas) are products
of the late twentieth century.
LNG and LPG are the
preferred fuel types of
certain countries for their
industrial power needs.
In its natural state, LNG is a
gas, so to transport it, it
needs to be kept as a
liquefied state by reducing
the temperature down to a
temperature of
approximately MINUS 160
degrees C.
Obviously, the carriage of a
potentially explosive
substance - kept at very low
temperatures in an unstable
liquefied state - presents a
very dangerous cargo, yet it
is for this very fact, that LNG
Carriers have about the best
safety record of all maritime
vessels. Only the best
officers and crews are
employed on these vessels,
and the vessels themselves
are maintained meticulously,
and renewed frequently.
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15. The car carrier or more correctly
the P.C.C. (Pure Car carrier) or
P.C./T.C. (Pure car/truck carrier),
could never be described as a
beauty of the seas, yet in it's
rectangular design, is purpose built
to carry large numbersof cars.
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16. SNH ©

17. These vessels are built for speed, and
can reach upwardsof 28 knots,
moving cargoes around the world.
Globally storing and returning empty
boxes has become an industry in itself
Through-transport or inter-modal
transport,means that these
containers can be offloaded from a
ship, and rapidly loaded onto trains or
onto container Lorries for onward
transport to the place of delivery.
Recently, this has led to serious
security concerns
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18.  Built to load, carry and discharge
large, unusual shaped cargoes (or
even smaller vessels) that will
simply not fit inside the holds of
conventional vessels.
 Shaped quite unlike any other
cargo vessels, heavy lift vessel are
designed to cope with unusually
large cargos that will not fit inside
normal, conventional vessels.
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19. The majority of vessel are only designed for craning the
cargos on board or rolling them onto the side of the vessel,
but a few heavy lift vessels can be ballasted down, so that
cargoes (often on pontoons) can be floated on. The vessel is
then raised, lifting the cargo, (now resting on the deck of the
heavy lift vessel), out of the water, ready for ocean transit,
often to the other side of the world. These specialist vessels
are often used in the oil industry for the carriage of jack up
rigs. Other unusual cargoes can include power plants,
desalination units, generators and yachts. In 2003, heavy lift
vessels were used to carry away the cut up sections of the
TRICOLOR when she was removed from the bottom of the
Dover Straits.
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20. Deadweight Tonnage
•Expressesthe number of tons of 2,240 pounds
that a vessel cantransport of cargo, stores, and
bunker fuel. It is the difference betweenthe
number of tons of water a vessel displaces"light"
and the number of tons it displaces when
submergedtothe "load line."
•Deadweight tonnage is usedinterchangeably with
deadweight carrying capacity. A vessel's capacity
for weight cargois less thanits total deadweight
tonnage.
Cargo Tonnage
•Is either "weight"or "measurement."The weight
ton inthe UnitedStates andinBritishcountries is
the Englishlong or gross tonof 2,240 pounds. In
France and other countries having the metric
systemaweight tonis 2,204.6 pounds.
•A "measurement"tonis usually 40 cubic feet, but
in some instances alarger number of cubic feet is
taken for a ton. Most oceanpackage freight is
taken at weight or measurement (W/M) ship's
option.
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21. Gross Tonnage
•Applies tovessels, not tocargo. It is determinedby
dividing by 100 the contents, incubic feet, of the
vessel's closed-inspaces. A vessel tonis 100 cubic
feet. The register of avessel statesbothgross and
net tonnage.
Net Tonnage
•Vessel's gross tonnage minus deductions of space
occupiedby accommodations for crew, by machinery,
for navigation, by the engine roomand fuel. A
vessel's net tonnage expressesthe space available for
the accommodation of passengers andthe stowage
of cargo.
•A tonof cargo inmost instances occupies lessthan
100 cubic feet;hence the vessel's cargotonnage may
exceedits net tonnage, and, indeed, the tonnage of
cargocarriedis usually greater thanthe gross
tonnage.
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22. Displacement
• Vessel is the weight,in tons of 2,240 pounds,
of the vessel and its contents.Displacement
"light"is the weightof the vessel without
stores, bunkerfuel, or cargo. Displacement
"loaded"is the weightof the vessel plus
cargo,fuel, and stores.
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23. Iceberg
Other reasons such
as narrow straits,
weather (typhoon,
monsoon region),
piracy
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24. In order to be registered, an
ocean-going ship must be
certified to be of a particular type
and size and be maintained to
certain minimum standards. While
most states (national
governments) do not insist that
ships be "classed," without a
"class" category there would be
considerable difficulties in
operating a ship, as "class" is a
requirement of most insurance
companies and shippers using the
vessel.
It also reflectson the risk
and safety management
aspects of the vessel, date
of last survey to maintain
classification and
seaworthinessof vessel
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25. The flag state of a commercial vessel is the state
under whose laws the vessel is registered or
licensed.
The flag state has the authority and responsibility
to enforce regulations over vessels registered
under its flag, including those relating to
inspection, certification, and issuance of safety and
pollution prevention documents.
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26. Masts can be the home of
antennas, navigation lights,
radar transponders, fog
signals, and similar devices
often required by law.
Ground tackle includes
equipment such as mooring
winches, windlasses, and
anchors. Anchors are used
to moor ships in shallow
water. They are connected
to the ship by a rope or
chain. On larger vessels,
the chain runs through a
hawsepipe.
Cargo equipment such as
cranes and cargo booms
are used to load and
unload cargo and ship's
stores.
Safety equipment such as
lifeboats, liferafts, and
survival suits are carried
aboard many vessels for
emergency use.
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27. A high level of repair costs due
to high loss ratio, will indicate
that premiums may need to be
increased and vice versa
This premium assessment will
be based particular to the
vessel type and its trade
The insurers will pay the ship
owner for the cost of repairs to
the ship after the damage has
been surveyed and tenders
from repair yards submitted
The ship owner will, however,
have an agreed amount
referred to as the “deductible”
which has to be paid by him
before a claim against his
insurance policy is submitted
For example, if the deductible
is RM 100,000 and a claim for
repairs is RM 300,000, the
insurers will compensate the
owner for RM 200,000
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28. An older vessel
poses a higher risk
than the newer one
The older the vessel,
the higher the risks.
This is due to:-
Higher repair
cost
Higher
maintenance
costs
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29. This may lead to an additional
premiumby the underwriter
The majority of marine
underwriters requirea marine
survey once every two years
and when a vessel has
reached 10 years of age
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30. 1.28%
0.0%
0.1%
0.2%
0.3%
0.4%
0.5%
0.6%
0-4 yrs 5-9 yrs 10-14 yrs 15-19 yrs 20-24 yrs 25 yrs +
% of World Fleet
Bulkers Tankers Other ships Total
Source: LMIU for Joint Hull Committee
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31. A P&I (Protection and
Indemnity) club will keep
records for each individual ship
entered with the club
These records are normally
based on the last five
insurance years and provide
an accurate record of all
payments made by the
member
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32. The amount
of premiums
paid in by
the member
The amount of
money paid
out for market
reinsurance
The amount of
money paid
back to the
owner as
compensation
Other costs
and the
amount
estimated for
claims not
settled
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33. The loss ratio will
therefore only be one
of the elements that
form the basis of the
annual renewal
process, where the
P&I premiums for the
coming year are fixed
A high level of claims,
and hence a high loss
ratio, will indicate
that premiums may
need to be increased
and vice versa, but
other risk measures
are also used to
establish the revised
premium level
Premiums should be
adequate to ensure
that a member
contributes equally
according to mutual
principles
This implies that, in
the long term, a
profitable, or as a
minimum, a break-
even premium level
has to be set for the
member
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34.  These are some of the developments spanning nearly 100
years that have enabled underwriters to gain experience
and to apply that experience to each new succeeding
stage in the evolution of shipping.
 Past experience of underwriter provides guide to the
rating of the hull insurance.
 The underwriter’s experience with the Assured is a
valuable guide in determining whether the rate is
adequate or excessive.
 An adverse loss ratio indicates the need for careful
reconsideration of risk factors; it does not necessarily
indicate that the rate should be revised.
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35. SNH ©

36. A careful study of the features of any risk should indicate its
quality. Good ownership is reflected in good seaworthy
craft, maintained in good order and properly managed
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37. The most important.
The physical condition of a vessel is only discoverable
through competent survey.
Most large trading vessels are registered with one of
the international registers such as Lloyd’s Register of
Shipping, The American Bureau of Shipping and
Germanischer Lloyd.
For smaller vessels, it would be in an underwriter’s
interest to arrange to have surveys completed before
making any decision about going on risk.
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38. Inspect a cargo vessel, to check for proper
seaworthiness and safety equipment
Some sea routes take cargo ships into
dangerous areas that are open to modern
piracy, or may have harsh weather conditions
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39. Past claims history will
give a clear indicationof
good or bad management
Prior claims informationshould
be comprehensive to ensure
that a correctpicture is obtained
and a proper assessmentis
made
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40. Analysis of
insurance
requirements/risk
management
Liaison with
insurers/insurance
brokers
Obtaining
optimum recovery
Settling liabilities
advantageously
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41. Loss damage liability or expense covered
by the Institute Time Clauses-Hulls
1/10/83 (including 4/4ths Collision
Clause) or which would be recoverable
there under but for Clause 12.
Any claim for any sum recoverable under
any other insurance on the Vessel or
which would be recoverable under such
insurance but for the existence of this
insurance.
Any claim for expenses arisingfrom delay
except such expenses as would be
recoverable in principle in English law and
practice under the York-Antwerp Rules
1974.
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42. This insurance may be cancelled
by either the Underwriters or the
Assuredgiving 7 days notice
Whether or not suchnotice
of cancellationhas been
giventhis insurance shall
terminate automatically
In the event either of
cancellationby notice or of
automatic terminationof
this insurance by reasonof
the operationof this Clause
5, or of the sale of the
Vessel, proratanet return
of premiumshall be
payable tothe Assured
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43. No claim arising from a peril insuredagainst
shall be payable under this insurance unless
the aggregate of all such claims arising out
of each separate accident or occurrence
Claims for damage by heavy weather
occurring during a single sea passage
between two successive ports shall be
treatedas being due to one accident
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44. Excluding any interestcomprisedtherein,
recoveriesagainstany claimwhich is subject to
the above deductibleshall be creditedto the
Underwritersin full to the extentof the sum by
which the aggregateof the claimunreduced by
any recoveriesexceedsthe above deductible
Interestcomprised in recoveriesshall be
apportioned betweenthe Assured and the
Underwriters,taking into account the sums paid
by the Underwriters and the dates when such
payments weremade
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45. War civil war
revolution
rebellion
insurrection,
or civil strife
arising
therefrom, or
any hostile act
by or against a
belligerent
power
Capture
seizure arrest
restraint or
detainment,
and the
consequences
thereof or any
attempt threat
Derelict mines
torpedoes
bombs or
other derelict
weapons of
war
Strikers,
locked-out
workmen, or
persons taking
part in labor
disturbances,
riots or civil
commotions
Any terrorist
or any person
acting
maliciously or
from a political
motive
Confiscation or
expropriation
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46. 
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