PARA 13.2|IC 67, Marine Insurance One Liner| Chapter-12 | Loss Prevention, Reinsurance, Maritime Frauds

Marine Insurance One Liner| Chapter-12 | Loss Prevention, Reinsurance, Maritime Frauds

Insurance exams offered by the Insurance Institute of India (III), consist of various papers either in Life or Non Life or Combined. Here we are providing ONE LINER IC 67, Maine Insurance CHAPTER 12: Loss Prevention, Reinsurance, Maritime Frauds for para 13.2 and III exam . These questions will be very helpful for upcoming promotional exam in 2020. IC 67, Maine Insurance is a very important topic in insurance promotional exam. This IC 67, Maine Insurance paper comes in all GIPSA exams which makes it very important.


  1. Major losses in transportation are due to:
  • Theft, pilferage and non-delivery
  • Handling and stowage losses
  • Water damage and
  • Maritime perils (comparatively a small percentage)
  1. “Skillful Pilferage” in which though container seals are intact, cargo is either stolen or replaced by inferior cargo by using dubious methods.
  2. Almost one-third of preventable losses attributable to pilferage, theft and non-delivery
  3. The shipper should be advised to take following simple precautions:

a) New and well-constructed packing :Use only new, well-constructed packing for the product.

  • Early deterioration or collapse of flimsy or used cartons, boxes or bags invites pilferage through exposure of contents.
  • Corrugated fasteners will add to the security of wooden boxes.
  • Shrink wrapping, strapping and banding will further contribute to package security.

b) Usage of coding: coded markings should be used and codes should be changed frequently.

c) Clear and complete delivery and handling instructions: Instruction should appear on at least three surfaces of the exterior package.

d) Unitising and palletizing: These as well as use of intermodal containers will help to keep the cargo together and also make it inconvenient to thieves and pilferers.

e) Insist on prompt pick-up and delivery: The longer the cargo rests on piers, in terminals, port sheds or in truck bodies, the more it is exposed to loss by theft or pilferage.

5.Marine insurers resist claims that arise from insufficient or unsuitable packing. It is for the consignor to ensure that adequate protection for the goods is provided.

6.One of the exclusions in Institute Cargo Clauses and Inland Transit Clauses (Rail or Road) reads as under:

  • “In no case shall this insurance cover loss, damage or expense caused by insufficiency or unsuitability of packing or preparation of the subject matter insured (for the purpose of this clause, “packing” shall be deemed to include stowage in a container or lift van but only where such stowage is carried out prior to attachment of this insurance or by the assured or their servant).”
  1. Packaging should be strong enough to withstand the weight of other cargo that might be stowed on top of it, and to withstand the pressures created by both movements in transit and handling
  2. Greater part of damage that occurs to cargo during ocean voyage is attributable to improper stowage
  3. Stowage means placing and securing of cargo in the holds of a vessel.
  4. The main objectives of good stowage are:
  • The general stability of the ship, safety of personnel on board and observance of load-line regulations.
  • To make optimum use of cargo space available in the vessel.
  • To facilitate loading, unloading and handling operations.
  • The prevention of damage to cargo by shifting, contact, sweat, bad stowage and similar causes.
  • To arrange the cargo shipped to different ports in such a way that it can be promptly and readily unloaded upon arrival at respective ports.
  1. Before the cargo is loaded, a “stowage plan” is prepared so that the master of the vessel has an adequate knowledge of the location of various types of cargoes stowed and the holds.
  2. Rain, high humidity, condensation and sea water separately or all of these in combination can reduce otherwise stable cargo into a ruin of soggy, stained, mildewed, rusty or delabelled merchandise.
  3. Cargo should be protected from water damage from external sources such as rain, sea-water, high humidity and ship’s sweat by adequate preparation and packing
  4. Preventive measures:
  • Apply preservatives, corrosion inhibitors or water-proof wrapping directly to the item.
  • Use of desiccants (that is, moisture absorbent materials) and waterproof barriers, liners and wraps is particularly effective in protecting moisture-sensitive items.
  • Shield cargo on top and sides by use of waterproof shrouds.
  • Provide adequate skids, pallets or dunnage to keep cargo items above collecting drainage.
  • Crates and other large containers should have drain holes in the bottom to preclude collection of water within the packing. This is particularly important where cargo is subject to formation of condensation, that is, cargo sweat.
  1. Following checklist will assist the shipper in inspecting a container to ensure that it will properly protect his cargo:
  • The container should be free from splinters, snags, dents, bulges or other damage.
  • It should be free of residue from previous cargoes, particularly odours which may taint cargo.
  • To inspect its watertight quality, enter the container, have the doors closed and look for light leaks. Also check whether previous patches / repairs are watertight.
  • Cargo tie-down cleats or rings should be in good condition and well secured. Check that the ventilator openings are not blocked off and that they are equipped with baffles to prevent rain or seawater entry.
  • Be sure that the doors can be securely locked and sealed and remain watertight when closed. Door gaskets should be in good condition and watertight when closed.
  • Check the lifting fittings at each corner of the container and the fittings that secure the container to the trailer chassis. They should be in working order. In case of opentop containers, check the hatch panels for close watertight fit.
  1. Preparing the cargo: Following are useful suggestions:
  • Pack for the toughest leg of the journey. Be certain that the merchandise cannot move within the carton, box or other container in which it is packed. Immobilise the contents by blocking or bracing or provide adequate cushioning.
  • Packages like cartons or boxes should be able to withstand the weight pressure of cargo stacked up to 8 feet high. Such packages should be able to bear lateral pressures also exerted by adjacent cargo in order to prevent crushing.
  • Heavy items like machinery and items not uniform in shape should be crated, boxed or provided with skids to permit ease of handling and compact stowage.
  1. Stowing cargo in the container
  • Plan the stow. Observe weight limitations. Do not exceed the rated capacity of container.
  • Distribute weight equally. Avoid concentrating heavy weights at one side or one end. Stow heaviest items on the bottom.
  • Avoid mixing incompatible cargo. Cargo which exudes odour or moisture should not be stowed with cargo susceptible to taint or water damage.
  • Cargo subject to leakage or spillage should not be stowed on top of other cargo.
  • Observe hazardous materials regulations.
  • Stow cargo in reverse order of desired cargo discharge.
  • Cargo for multiple consignees should be physically separated by partitions, dividers, paper or plastic sheets.
  • Forklift openings in pallets or skids should face doors of containers.
  1. Section 9 of the Marine Insurance Act 1963 states that an insurer under a contract of marine insurance has an insurable interest in his risk and may reinsure in respect of it

19.Reinsurance is effected mainly:

  • To reduce an underwriter’s line on any particular risk to an amount which he desires to retain on his own account;
  • To offload all or part of an undesirable or doubtful risk;
  • To protect against catastrophe loss;
  • To increase market capacity by spreading the risk over the international market and creating reciprocity
  • To provide an underwriting capacity, which also means ability to participate in risks which are not otherwise available;
  • To stabilise the underwriting results of a company; a well-planned reinsurance programme can ensure profitability as well as maintenance of solvency margin.
  1. The methods or types of reinsurance can be broadly divided into two main sections, namely, proportional and non-proportional contracts
  2. Under proportional reinsurance the reinsurer accepts liability for a proportionate share of each risk ceded.
  3. There is a common apportionment between the ceding company and the reinsurer of original sum insured, of premiums and losses according to a pre-determined percentage or share.
  4. Such contracts include Facultative, Quota Share Treaty, Surplus Treaty, Facultative Obligatory Arrangements and Pools.
  5. Non-proportional reinsurance Under this arrangement, the reinsurer pays the ceding company only when the original loss has exceeded the limit of retention of the ceding company.
  6. the reinsurer is not directly concerned about the original rates charged by the ceding company, as the premium rates he charges are calculated independently, mainly on the basis of the past experience of the account.
  7. Facultative and treaty reinsurance:Both proportional and non-proportional reinsurances can be transacted on a facultative or a treaty basis.

  1. For facultative placement, each risk is considered separately by the reinsurer who has the option to either accept the full risk or a part of it or decline it altogether.
  2. The main drawback of this method is that the ceding company cannot give immediate cover on risks which are beyond its retention limits, as the underwriter must first contact several reinsurers to complete the placement of the amount exceeding his retention.
  3. facultative reinsurance has its uses for the following main reasons:
  • To reinsure amounts exceeding the treaty facilities.
  • To reinsure special types of risks which are outside the scope of usual treaties.
  • To reduce the exposure in areas where, because of accumulation of risks, the ceding company is already heavily committed.
  • To facilitate reciprocal exchange of business and seek the expertise and experience of reinsurers on risks of special nature
  1. Treaties : an agreement is entered into between the ceding company and the reinsurer, whereby the ceding company agrees to cede and the reinsurer agrees to accept automatically all insurance offered within the limits of the treaty.
  2. The reinsurer no longer examines each risk individually and he has no power to decline a risk as long as it falls within the agreed scope of the treaty. He has to accept good risks with bad risks.(Treaties)
  3. Quota share treaty: Under this treaty, a fixed proportion of every risk in a given class of business is ceded. The reinsurer thus shares proportionately in all losses and receives the same proportion of all premiums
  4. For example, quota share arrangement limit could be expressed as: “To accept 80% of every risk insured, not to exceed Rs. 30 lakhs any one risk
  5. Disadvantages of Quota Share:
  • The main disadvantage of the quota share method to the ceding company is that the ceding company cannot vary its retention for any particular risk and thus it pays away premiums on small risks, which it could very well retain for its own account.
  • Another disadvantage, which follows form the first, is that the sizes of risks retained by the ceding company are not homogeneous, as it retains a fixed percentage of all risks written, and such risks are of varying sizes.
  1. A Surplus (also called “excess of line”) treaty allows the ceding company to reinsure under the treaty any part of the risk which it is not retaining for its own account.
  2. A surplus treaty is arranged for, say, four, five or more lines, a “line” being the amount of the ceding company’s retention.
  3. The “line” or the “limit of retention” is the maximum which the ceding company can retain, and it is possible for it to retain a smaller amount than the limit, thus enabling the ceding company to arrange its retention in relation to the quality of the risk it is reinsuring.
  4.  The ceding company may keep a higher retention on a risk of superior quality and a lower retention on an inferior risk
  5. Advantages of surplus treaty: The advantages of the surplus treaty to the ceding company are as follows:
  • Only the proportion of the risk exceeding the ceding company’s retention is reinsured, so that smaller risks within the ceding company’s retention are not ceded.
  • As the ceding company retains a fixed monetary limit (as opposed to fixed percentage proportion under quota share arrangement), the portfolio it retains becomes homogeneous.
  • By retaining a larger amount of good risks and a smaller amount of poor ones, the ceding company can keep better quality of business to itself than it cedes to reinsurers.
  1. Disadvantages of surplus treaty: The main disadvantage to the reinsurer is that not only does he receive larger share of poor risks, he also receives a larger share of peak risks, as the ceding company will have retained whole or large proportion of the smaller risks for its own account.
  2.  Commission rates to the ceding company under surplus treaty are less than those under quota share treaty
  3. Facultative obligatory treaty: These treaties are also called “Auto-fac treaties”. As the name indicates, the Facultative Obligatory Treaty (Fac-Oblig) has the features of both facultative cessions and obligatory treaties.
  4. This treaty is defined as an agreement whereby the ceding company has the option to cede (no compulsion) as for facultative risks, and the reinsurer is bound to accept (that is, having no option to decline) as under a treaty arrangement, a share of the specified risk offered by the ceding company.
  5. Fac-Oblig arrangement comes after a surplus treaty and gives automatic reinsurance facilities to the ceding company when the capacity of the surplus treaty has been exhausted.
  6. Pooling arrangements: These arrangements create a capacity to handle risks of a catastrophic nature or risks of special category, for example atomic energy risk
  7. Excess of loss treaty: This arrangement is basically a form of reinsurance whereby the direct insurer sets a monetary limit to the amount he is prepared to bear of any one loss as a result of any one event, on the class or classes of business concerned.
  8. An excess of loss arrangement helps to reduce the ceding company’s exposure on individual risks more efficiently than proportional reinsurances and it also deals more effectively with the problems of accumulations and catastrophe risks.
  9. There are two types of Excess of Loss covers: Working covers and catastrophe covers.
  • Working covers are Excess of Loss treaties under which the ceding company as well as the reinsurer agree to protect the normal exposure of the business covered that is normal losses which occur with some regularity.
  • Catastrophe covers, on the other hand, protect the ceding company against the risk of accumulation in the event of one catastrophe, for example, total losses, cyclone, earthquake, port godown fires, explosions in the port area, etc. When this cover is attracted, the event involves more than one risk by the very nature and extent of cover it affords.
  1. Stop loss treaty:This type of reinsurance cover (also called “Excess of Loss Ratio”) prevents the ceding company from losing more than a specified amount of loss for a given class of business. Stop Loss Reinsurance makes it possible to limit the ceding company’s loss ratio to an agreed percentage.
  2. 51. the loss ratio of the ceding company is stopped at an agreed percentage, and if in any one accounting year, the loss ratio exceeds that percentage, and then the reinsurers pay the difference.
  3. This type of reinsurance is of a catastrophic nature and seldom starts at less than 70% or 80% loss ratio. For example, the treaty may cover “amounts in excess of 80% loss ratio upto 130% (alternatively expressed as: “amounts in excess of 80% loss ratio upto a further 50%).
  4. Stop loss cover may be arranged in addition to the normal Surplus or Excess of Loss treaties to protect the net retained account of the company
  5. Aggregate excess of loss treaty: An Aggregate Excess of Loss treaty works on the same principle as a Stop Loss Treaty, but instead of expressing the loss ratio limit as a percentage of the annual premium, it is stated in actual figures.
  6. Open cover: Under this method the direct insurer is free to choose within the terms of the treaty, which risks he wishes to cede.
  7. Alternative risk transfer: This is a recent method of reinsurance. It usually extends over a period of 3- 5 years and covers a combination of areas where the ‘risk exposure’ is very low. It is a contract with customised terms.
  8. Main objectives of common reinsurance programme are:
  • To retain as much business as possible within the country consistent with safety and underwriting safeguards and prudence.
  • To obtain the best possible terms for reinsurance placed outside the country.
  1. The main structure of the reinsurance programme is broadly as follows:
  • 10% obligatory cessions in each class of business to GIC which is retained entirely within the country, protected by Excess of loss arrangements.
  • Net retentions of individual companies.
  • Cessions upto specified limits to Market Pools in Fire and Marine Hull departments. The Pool cessions are protected by Excess of Loss covers and retroceded back to the companies and are retained fully within the country. These Pools have been formed with the primary purpose of increasing the net retained premium within the country.
  • First and Second Surplus treaties of the 4 companies, which are traded outside the country by the companies themselves, mostly on reciprocal basis.
  • Market Surplus Treaty to take the balance surplus in case of huge industrial risks, large marine cargo commitments and exposure on high valued vessels.
  • Any balance after the treaties are exhausted is reinsured facultatively. Facultative reinsurances upto specified limits are absorbed within the country and are protected by Aggregate Excess of Loss cover.
  • Net retained accounts of the companies in individual departments are protected by Excess of Loss covers.
  1. An international trade transaction involves several parties – exporter, importer, ship owner, charterer, ship’s master, officers and crew, insurer, banker, broker or agent, freight forwarder, etc.
  2. Maritime fraud occurs when one of the above-mentioned parties succeeds, unjustly and illegally, in obtaining money or goods from another party.
  3. Maritime fraud has many guises and its methods are open to infinite variations. Majority of these crimes can be classified into following categories:
  • Scuttling of ships (deliberate sinking of older vessels with / without cargo to claim insurance also called Rust Bucket Fraud)
  • Documentary frauds (the illegal manipulation of shipping documents)
  • Cargo thefts (ship deviation and subsequent theft of cargo)
  • Fraud related to the chartering of vessels
  • Piracy
  1. Scuttling frauds: Also known as “rust bucket” frauds, this involves deliberate sinking of vessels in pursuance of fraud against both cargo and hull interests.
  2. Documentary frauds: This type of fraud involves the sale and purchase of goods on documentary credit terms, and some or all of the documents specified by the buyer to be presented by the seller to the bank, in order to receive payment, are forged.
  3. The vessels usually employed by fraudsters are:
  • Vessels flying a flag of convenience
  • Vessels over 15 – 20 years of age
  • Usually small sized ships of 7000 to 10,000 GRT
  • Vessels having changed their names and owners a few months before the last voyage.
  1. Cargo thefts: There are several variations in the modus operandi of cargo thefts. In a typical example, the vessel, having loaded a cargo, deviates from its route and puts into a port of convenience.
  2. Such ports are Tripoli, Beirut, Almina, Jounieh, Ras Salaata and others along the coasts of Greece, Lebanon and Syria.
  3. Fraud related to the chartering of vessels: This is also known as “charter-party fraud”. Establishing a chartering company requires modest initial financial commitment and is usually subject to little regulation.
  4. Piracy is the act of boarding any vessel with an intent to commit theft or any other crime, and with an intent or capacity to use force in furtherance of that act.
  5. Pirate attacks are largely confined to four major areas:
  • The Gulf of Aden, near Somalia and the southern entrance to the Red Sea;
  • The Gulf of Guinea, near Nigeria and the Niger River Delta;
  • The Malacca Strait between Indonesia and Malaysia;
  • The Indian Subcontinent, particularly between India and Sri Lanka
  1. Barratry” can be defined as every wrongful act wilfully committed by the master or crew to the prejudice of the owner, or, as the case may be, the charterer. For e.g. running away with the ship, sinking her, deserting her, steeling the congo, etc
  2. The paramount clause no. 25 of the Institute Time Clauses – Malicious Acts

Exclusions – excludes loss, damage, liability or expense arising from:

  • the detonation of an explosive
  • any weapon of war and caused by any person acting maliciously or from a political motive
  1. Bankers should take following precautions against maritime fraud:
  • Bankers should make use of Lloyd’s Shipping Index. Important points to check with regard to the carrying vessel are ownership, age, size and, importantly, the position of the vessel at the time the bill of lading was dated.
  • If such checks are considered difficult for a bank because of the volume of work involved, then perhaps a “super-service” at additional cost to the customers, should be considered with the actual checks being carried out by outside agents or brokers retained at an annual fee.
  • Methods should be examined of improving documentary credit operations by the application of computerised and modern business methods

Join Telegram Group: Click Link

Para 13.2 Maha Combo Mock

App  Link

Mahacombo ✅

  • 111 Online Mock Tests
  • 4775 Total MCQ’s
  • 15 Fire Mock Tests (450 qus)
  • 15 Marine Mock Tests (450 qus)
  • 13 HRM Mock Tests (450 qus)
  • 15 Miscellaneous Mock Tests (450 qus)
  • 3 Full Length Mock Tests
  • Current Affairs Mock Tests (Covered from January 2020 to Till Exam)
  • 10 Static Mock Tests
  • 20 English Mock Tests
  • With Explanations
  • English Language Only
  • Access on Web and App 24/7

Read More IC 67 Oneliners Chapter wise

Buy Online Mock Tests for GIPSA & Para 13.2 Exams


IC-01 Principles of Insurance Online Mock Tests Click Here
IC 92 Actuarial Aspects of Product Development Online Mock Tests Click Here
IC 86 Risk Management Online Mock Test Click Here
IC 85 Reinsurance Online Mock Tests Click Here
IC-90 HRM Online Mock Tests Click Here
IC-14 Regulation of Insurance Business Online Mock Tests Click Here
IC-11 Practice of General Insurance (Licentiate) Online Mock Tests Click Here
IC-57 FIRE Insurance Online Mock Test Click Here
IC-67 MARINE Insurance Online Mock Test Click Here
IC-78 MISCELLANEOUS Insurance Online Mock Test Click Here
IC-72 Motors Online Mock Tests Click Here
IC 02 Click Here
IC-26 Click here
IC-76 Click Here
IC-27 Click here

Leave a Reply