Vehicle insurance

Vehicle insurance (also known as auto insurance, GAP insurance, car insurance, or motor insurance) is insurance purchased for cars, trucks, motorcycles, and other road vehicles. Its primary use is to provide financial protection against physical damage and/or bodily injury resulting from traffic collisions and against liability that could also arise therefrom. The specific terms of vehicle insurance vary with legal regulations in each region. To a lesser degree vehicle insurance may additionally offer financial protection against theft of the vehicle and possibly damage to the vehicle, sustained from things other than traffic collisions.

1. Public policies

In many jurisdictions it is compulsory to have vehicle insurance before using or keeping a motor vehicle on public roads. Most jurisdictions relate insurance to both the car and the driver, however the degree of each varies greatly.

Several jurisdictions have experimented with a "pay-as-you-drive" insurance plan which is paid through a gasoline tax (petrol tax). This would address issues of uninsured motorists and also charge based on the miles (kilometres) driven, which could theoretically increase the efficiency of the insurance, through streamlined collection.

1.1 Australia

In South Australia, Third Party Personal insurance from the Motor Accident Commission is included in the licence registration fee for people over 17. A similar scheme applies in Western Australia.

In Victoria, Third Party Personal insurance from the Transport Accident Commission is similarly included, through a levy, in the vehicle registration fee.

In New South Wales, Compulsory Third Party Insurance (commonly known as CTP Insurance) is a mandatory requirement and each individual car must be insured or the vehicle will not be considered legal. Therefore, a motorist cannot drive the vehicle until it is insured. A 'Green Slip,' another name by which CTP Insurance is commonly known due to the colour of the pages which the form is printed on, must be obtained through one of the five licenced insurers in New South Wales. Suncorp and Allianz both hold two licences to issue CTP Greenslips - Suncorp under the GIO and AAMI licences and Allianz under the Allianz and CIC/Allianz licences. The remaining three licences to issue CTP Greenslips are held by QBE, Zurich and IAL - NRMA. APIA now also supplies CTP but is only for over 50's who are no longer working full time. A similar scheme applies in the ACT.

In Queensland, CTP is a mandatory part of registration for a vehicle. There is choice of insurer but price is government controlled in a tight band.

These state based third party insurance schemes usually cover only personal injury liability. Comprehensive vehicle insurance is sold separately to cover property damage and cover can be for events such as fire, theft, collision and other property damage.

1.2 Canada

Several Canadian provinces (British Columbia, Saskatchewan, Manitoba and Quebec) provide a public auto insurance system while in the rest of the country insurance is provided privately. Basic auto insurance is mandatory throughout Canada with each province's government determining which benefits are included as minimum required auto insurance coverage and which benefits are options available for those seeking additional coverage. Accident benefits coverage is mandatory everywhere except for Newfoundland and Labrador. All provinces in Canada have some form of no-fault insurance available to accident victims. The difference from province to province is the extent to which tort or no-fault is emphasized. International drivers entering Canada are permitted to drive any vehicle their licence allows for the 3 month period for which they are allowed to use their international licence. International laws provide visitors to the country with an International Insurance Bond (IIB) until this 3 month period is over in which the international assailant must provide themselves with Canadian Insurance. The IIB is reinstated every time the international assailant enters the country. Damage to the driver's own vehicle is optional - one notable exception to this is in Saskatchewan, where SGI provides collision coverage (less than a $1000 deductible, such as a collision damage waiver) as part of its basic insurance policy. In Saskatchewan, residents have the option to have their auto insurance through a tort system but less than 0.5% of the population have taken this option.

1.3 Germany

Since 1939, it has been compulsory to have third party personal insurance before keeping a motor vehicle in all federal states of Germany. Besides, every vehicle owner is free to take out a comprehensive insurance policy. All types of car insurances are provided by several private insurers. The amount of insurance contribution is determined by several criteria, like the region, the type of car or the personal way of driving.

The minimum coverage defined by Germany law for car liability insurance / third party personal insurance is:
7.5 Million Euro for bodily injury (damage to people), 1 Million Euro for property damage and 50,000 Euro for financial/fortune loss which is in no direct or indirect coherence with bodily injury or property damage. Indeed Insurance Companies usually offer all-in/combined single limit insurances of 50 Million Euro or 100 Million Euro (about 141 Million Dollar) for bodily injury, property damage and other financial/fortune loss (usually with a bodily injury coverage limitation of 8 to 15 Million Euro for EACH bodily injured person).

1.4 Hungary

Third-party vehicle insurance is mandatory for all vehicles in Hungary. No exemption is possible by money deposit. The premium covers all damage up to HUF 500M (about €1.8M) per accident without deductible. The coverage is extended to HUF 1,250M (about €4.5M) in case of personal injuries. Vehicle insurance policies from all EU-countries and some non-EU countries are valid in Hungary based on bilateral or multilateral agreements. Visitors with vehicle insurance not covered by such agreements are required to buy a monthly, renewable policy at the border.

1.5 Indonesia

Third-party vehicle Insurance is a mandatory requirement in Indonesia and each individual car and motorcycle must be insured or the vehicle will not be considered legal. Therefore, a motorist cannot drive the vehicle until it is insured. Third Party vehicle insurance is included through a levy in the vehicle registration fee which is paid to government institution that known as "Samsat". Third-Party Vehicle Insurance is regulated under Act No. 34 Year 1964 Re: Road Traffic Accident Fund and merely covers Bodily injury, and managed by a SOE named PT. Jasa Raharja (Persero).

1.6 India

Auto Insurance in India deals with the insurance covers for the loss or damage caused to the automobile or its parts due to natural and man-made calamities. It provides accident cover for individual owners of the vehicle while driving and also for passengers and third party legal liability. There are certain general insurance companies who also offer online insurance service for the vehicle.

Auto Insurance in India is a compulsory requirement for all new vehicles used whether for commercial or personal use. The insurance companies have tie-ups with leading automobile manufacturers. They offer their customers instant auto quotes. Auto premium is determined by a number of factors and the amount of premium increases with the rise in the price of the vehicle. The claims of the Auto Insurance in India can be accidental, theft claims or third party claims. Certain documents are required for claiming Auto Insurance in India, like duly signed claim form, RC copy of the vehicle, Driving license copy, FIR copy, Original estimate and policy copy.

There are different types of Auto Insurance in India :

Private Car Insurance - In the Auto Insurance in India, Private Car Insurance is the fastest growing sector as it is compulsory for all the new cars. The amount of premium depends on the make and value of the car, state where the car is registered and the year of manufacture.

Two Wheeler Insurance - The Two Wheeler Insurance under the Auto Insurance in India covers accidental insurance for the drivers of the vehicle. The amount of premium depends on the current showroom price multiplied by the depreciation rate fixed by the Tariff Advisory Committee at the time of the beginning of policy period.

Commercial Vehicle Insurance - Commercial Vehicle Insurance under the Auto Insurance in India provides cover for all the vehicles which are not used for personal purposes, like the Trucks and HMVs. The amount of premium depends on the showroom price of the vehicle at the commencement of the insurance period, make of the vehicle and the place of registration of the vehicle. The auto insurance generally includes:

• Loss or damage by accident, fire, lightning, self ignition, external explosion, burglary, housebreaking or theft, malicious act.
• Liability for third party injury/death, third party property and liability to paid driver
• On payment of appropriate additional premium, loss/damage to electrical/electronic accessories

The auto insurance does not include:

• Consequential loss, depreciation, mechanical and electrical breakdown, failure or breakage
• When vehicle is used outside the geographical area
• War or nuclear perils and drunken driving

1.7 Ireland

The Road Traffic Act, 1933 requires all drivers of mechanically propelled vehicles in public places to have at least third-party insurance, or to have obtained exemption - generally by depositing a (large) sum of money with the High Court as a guarantee against claims. In 1933 this figure was set at £15,000. The Road Traffic Act, 1961  (which is currently in force) repealed the 1933 act but replaced these sections with functionally identical sections.

From 1968, those making deposits require the consent of the Minister for Transport to do so, with the sum specified by the Minister.

 

Those not exempted from obtaining insurance must obtain a certificate of insurance from their insurance provider, and display a portion of this (an insurance disc) on their vehicles windscreen (if fitted). The certificate in full must be presented to a police station within ten days if requested by an officer. Proof of having insurance or an exemption must also be provided to pay for the motor tax.

Those injured or suffering property damage/loss due to uninsured drivers can claim against the Motor Insurance Bureau of Ireland's uninsured drivers fund, as can those injured (but not those suffering damage or loss) from hit and run offences.

1.8 New Zealand

Within New Zealand, the Accident Compensation Corporation (ACC) provides nationwide no-fault personal injury insurance. Injuries involving motor vehicles operating on public roads are covered by the Motor Vehicle Account, for which premiums are collected through levies on petrol and through vehicle licensing fees.

1.9 Norway

In Norway, the vehicle owner must provide the minimum of liability insurance for his vehicle(s) - of any kind. Otherwise, the vehicle is illegal to use. If a person drives a vehicle belonging to someone else, and has an accident, the insurance will cover up for damage done.

1.10 Romania

Romanian law mandates Răspundere Auto Civilă, a motor-vehicle liability insurance for all vehicle owners to cover damages to third parties.

1.11 South Africa

South Africa allocates a percentage of the money from gasoline into the Road Accident Fund, which goes towards compensating third parties in accidents.

1.12 United Kingdom

In 1930, the UK government introduced a law that required every person who used a vehicle on the road to have at least third party personal injury insurance. Today, UK law is defined by the Road Traffic Act 1988, which was last modified in 1991. The Act requires that motorists either be insured, have a security, or have made a specified deposit (£500,000 as of 1991) with the Accountant General of the Supreme Court, against their liability for injuries to others (including passengers) and for damage to other persons' property, resulting from use of a vehicle on a public road or in other public places.

It is an offence to use a car, or allow others to use it, without the insurance that satisfies the act whilst on the public highway (or public place Section 143(1)(a) RTA 1988 as amended 1991); however, no such legislation applies on private land.

Road Traffic Act Only Insurance differs from Third Party Only Insurance (detailed below) and is not often sold. It provides the very minimum cover to satisfy the requirements of the Act. For example Road Traffic Act Only Insurance has a limit of £1,000,000 for damage to third party property - third party only insurance typically has a greater limit for third party property damage.

The minimum level of insurance cover commonly available, and which satisfies the requirement of the Act, is called third party only insurance. The level of cover provided by Third party only insurance is basic, but does exceed the requirements of the act. This insurance covers any liability to third parties, but does not cover any other risks.

More commonly purchased is third party, fire and theft. This covers all third party liabilities and also covers the vehicle owner against the destruction of the vehicle by fire (whether malicious or due to a vehicle fault) and theft of the vehicle itself. It may or may not cover vandalism. This kind of insurance and the two preceding types do not cover damage to the vehicle caused by the driver or other hazards.

Comprehensive insurance covers all of the above and damage to the vehicle caused by the driver themselves, as well as vandalism and other risks. This is usually the most expensive type of insurance. For valuable cars, many insurers only offer comprehensive insurance.

Vehicles that are exempt from the requirement to be covered under the Act include those owned by certain councils and local authorities, national park authorities, education authorities, police authorities, fire authorities, health service bodies and security services.

The insurance certificate or cover note issued by the insurance company constitutes legal evidence that the vehicle specified on the document is insured. The law says that an authorised person, such as the police, may require a driver to produce an insurance certificate for inspection. If the driver cannot show the document immediately on request, and proof of insurance cannot be found by other means such as the Police National Computer, drivers are no longer issued a HORT/1. This was an order with seven days, as of midnight of the date of issue, to take a valid insurance certificate (and usually other driving documents as well) to a police station of the driver's choice. Failure to produce an insurance certificate is an offence. The HORT/1 was commonly known - even by the issuing authorities when dealing with the public - as a "Producer".

Insurance is more expensive in Northern Ireland than in other parts of the UK. In 2010 the cost of car insurance rose by an average of 33%.

 

Most motorists in the UK are required to prominently display a vehicle excise licence (tax disc) on their vehicle when it is kept or driven on public roads. This helps to ensure that most people have adequate insurance on their vehicles because an insurance certificate must be produced when a disc is purchased, although the insurance must merely be valid at the time of purchase and not necessarily for the life of the tax disc.

The Motor Insurers' Bureau (MIB) compensates the victims of road accidents caused by uninsured and untraced motorists. It also operates a number of Motor Insurance Databases, which contain details of every insured vehicle in the country and acts as a means to share information between Insurance Companies.

On 1 March 2011 the European Court of Justice in Luxembourg ruled that gender could no longer be used by insurers to set car insurance premiums. The new ruling will come into action from December 2012. 

In June 2011 a new law known as Continuous Insurance Enforcement came into force in the UK meaning that a vehicle must have a valid insurance policy if it has a tax disc, whether or not it is kept on public roads and whether or not it is driven. If the car is to be "laid up" for whatever reason, the tax disc must be surrendered and a SORN declaration completed to say that it is off the public roads.

2. Coverage levels

Vehicle insurance can cover some or all of the following items:

• The insured party (medical payments)
• The insured vehicle (physical damage)
• Third parties (car and people, property damage and bodily injury)
• Third party, fire and theft
• In some jurisdictions coverage for injuries to persons riding in the insured vehicle is available without regard to fault in the auto accident (No Fault Auto Insurance)

 

Different policies specify the circumstances under which each item is covered. For example, a vehicle can be insured against theft, fire damage, or accident damage independently.

3.Excess

An excess payment, also known as a deductible, is a fixed contribution that must be paid each time a car is repaired with the charges billed to an automotive insurance policy. Normally this payment is made directly to the accident repair "garage" (the term "garage" refers to an establishment where vehicles are serviced and repaired) when the owner collects the car. If one's car is declared to be a "write off" (or "totaled"), then the insurance company will deduct the excess agreed on the policy from the settlement payment it makes to the owner.

If the accident was the other driver's fault, and this fault is accepted by the third party's insurer, then the vehicle owner may be able to reclaim the excess payment from the other person's insurance company.

3.1 Compulsory excess

A compulsory excess is the minimum excess payment the insurer will accept on the insurance policy. Minimum excesses vary according to the personal details, driving record and the insurance company.

3.2 Voluntary excess

To reduce the insurance premium, the insured party may offer to pay a higher excess (deductible) than the compulsory excess demanded by the insurance company. The voluntary excess is the extra amount, over and above the compulsory excess, that is agreed to be paid in the event of a claim on the policy. As a bigger excess reduces the financial risk carried by the insurer, the insurer is able to offer a significantly lower premium.

3.3 Basis of premium charges

Main article: auto insurance risk selection

Depending on the jurisdiction, the insurance premium can be either mandated by the government or determined by the insurance company, in accordance with a framework of regulations set by the government. Often, the insurer will have more freedom to set the price on physical damage coverages than on mandatory liability coverages.

When the premium is not mandated by the government, it is usually derived from the calculations of an actuary, based on statistical data. The premium can vary depending on many factors that are believed to have an impact on the expected cost of future claims. Those factors can include the car characteristics, the coverage selected (deductible, limit, covered perils), the profile of the driver (age, gender, driving history) and the usage of the car (commute to work or not, predicted annual distance driven).

3.4 Gender

On 1 March 2011, the European Court of Justice controversially decided insurance companies who used gender as a risk factor when calculating insurance premiums were breaching EU equality laws. The Court ruled that car-insurance companies were discriminating against men, and these practices had to stop.

3.5 Age

Teenage drivers who have no driving record will have higher car insurance premiums. However, young drivers are often offered discounts if they undertake further driver training on recognized courses, such as the Pass Plus scheme in the UK. In the US many insurers offer a good-grade discount to students with a good academic record and resident-student discounts to those who live away from home. Generally insurance premiums tend to become lower at the age of 25. Some insurance companies offer "stand alone" car insurance policies specifically for teenagers with lower premiums. By placing restrictions on teenagers' driving (forbidding driving after dark, or giving rides to other teens, for example), these companies effectively reduce their risk. A teenager driving a safer car, such as a sedan rather than a flashy sports car, can also get lower insurance rates. Senior drivers are often eligible for retirement discounts, reflecting the lower average miles driven by this age group. Rates may increase for senior drivers after age 65, due to increased risk associated with much older drivers. Typically, the increased risk for drivers over 65 years of age is associated with slower reflexes, reaction times, and being more injury-prone as a result of aging. Additionally, older drivers between the ages of 60 and 70 in the US must be able to demonstrate competency in order to retain a driver's license.

3.6 US Driving history

In most US states, moving violations, including running red lights and speeding, assess points on a driver's driving record. Since more points indicate an increased risk of future violations, insurance companies periodically review drivers' records, and may raise premiums accordingly. Laws vary from state to state, but most insurers allow one moving violation every three to five years before increasing premiums. Accidents affect insurance premiums similarly. Depending on the severity of the accident and the number of points assessed, rates can increase by as much as twenty to thirty percent. Any motoring convictions should be disclosed to insurers, as the driver is assessed by risk from prior experiences while driving on the road.

3.7 Marital status

Statistics show that married drivers average fewer accidents than the rest of the population so policy owners who are married often receive lower premiums than single persons.

3.8 Vehicle classification

Two of the most important factors that go into determining the underwriting risk on motorized vehicles are: performance capability and retail cost. The most commonly available providers of auto insurance have underwriting restrictions against vehicles that are either designed to be capable of higher speeds and performance levels, or vehicles that retail above a certain dollar amount. Vehicles that are commonly considered luxury automobiles usually carry more expensive physical damage premiums because they are more expensive to replace. Vehicles that can be classified as high performance autos will carry higher premiums generally because there is greater opportunity for risky driving behavior. Motorcycle insurance may carry lower property-damage premiums because the risk of damage to other vehicles is minimal, yet have higher liability or personal-injury premiums, because motorcycle riders face different physical risks while on the road. Risk classification on automobiles also takes into account the statistical analysis of reported theft, accidents, and mechanical malfunction on every given year, make, and model of auto.

3.9 Distance

Some car insurance plans do not differentiate in regard to how much the car is used. There are however low-mileage discounts offered by some insurance providers. Other methods of differentiation would include: over-road distance between the ordinary residence of a subject and their ordinary, daily destinations.

3.9.1 Reasonable distance estimation

Another important factor in determining car-insurance premiums involves the annual mileage put on the vehicle, and for what reason. Driving to and from work every day at a specified distance, especially in urban areas where common traffic routes are known, presents different risks than how a retiree who does not work any longer may use their vehicle. Common practice has been that this information was provided solely by the insured person, but some insurance providers have started to collect regular odometer readings to verify the risk.

3.9.2 Odometer-based systems

Cents Per Mile Now(1986) advocates classified odometer-mile rates, a type of usage-based insurance. After the company's risk factors have been applied, and the customer has accepted the per-mile rate offered, then customers buy prepaid miles of insurance protection as needed, like buying gallons of gasoline (litres of petrol). Insurance automatically ends when the odometer limit (recorded on the car's insurance ID card) is reached, unless more distance is bought. Customers keep track of miles on their own odometer to know when to buy more. The company does no after-the-fact billing of the customer, and the customer doesn't have to estimate a "future annual mileage" figure for the company to obtain a discount. In the event of a traffic stop, an officer could easily verify that the insurance is current, by comparing the figure on the insurance card to that on the odometer.

Critics point out the possibility of cheating the system by odometer tampering. Although the newer electronic odometers are difficult to roll back, they can still be defeated by disconnecting the odometer wires and reconnecting them later. However, as the Cents Per Mile Now website points out:

As a practical matter, resetting odometers requires equipment plus expertise that makes stealing insurance risky and uneconomical. For example, to steal 20,000 miles [32,200 km] of continuous protection while paying for only the 2000 in the 35000 to 37000 range on the odometer, the resetting would have to be done at least nine times, to keep the odometer reading within the narrow 2,000-mile [3,200 km] covered range. There are also powerful legal deterrents to this way of stealing insurance protection. Odometers have always served as the measuring device for resale value, rental and leasing charges, warranty limits, mechanical breakdown insurance, and cents-per-mile tax deductions or reimbursements for business or government travel. Odometer tampering, detected during claim processing, voids the insurance and, under decades-old state and federal law, is punishable by heavy fines and jail.

Under the cents-per-mile system, rewards for driving less are delivered automatically, without the need for administratively cumbersome and costly GPS technology. Uniform per-mile exposure measurement for the first time provides the basis for statistically valid rate classes. Insurer premium income automatically keeps pace with increases or decreases in driving activity, cutting back on resulting insurer demand for rate increases and preventing today's windfalls to insurers, when decreased driving activity lowers costs but not premiums.

3.9.3 GPS-based system

In 1998, the Progressive Insurance company started a pilot program in Texas, in which drivers received a discount for installing a GPS-based device that tracked their driving behavior and reported the results via cellular phone to the company. Policyholders were reportedly more upset about having to pay for the expensive device than they were over privacy concerns. The program was discontinued in 2000. In following years many policies (including Progressive) have been trialed and successfully introduced worldwide into what are referred to as Telematic Insurance. Such 'telematic' policies typically are based on black-box insurance technology, such devices derive from stolen vehicle and fleet tracking but are used for insurance purposes. Since 2010 GPS-based and Telematic Insurance systems have become more mainstream in the auto insurance market not just aimed at specialised auto-fleet markets or high value vehicles (with an emphasis on stolen vehicle recovery). Modern GPS-based systems are branded as 'PAYD' Pay As You Drive insurance policies, 'PHYD' Pay How You Drive or since 2012 Smartphone auto insurance policies which utilise smartphones as a GPS sensor.

3.9.4 OBDII-based system

The Progressive Corporation launched Snapshot to give drivers a customized insurance rate based on recording how, how much, and when their car is driven. Snapshot is currently available in 38 US states. Driving data is transmitted to the company using an on-board telematic device. The device connects to a car's OnBoard Diagnostic (OBD-II) port (all petrol automobiles in the USA built after 1996 have an OBD-II.) and transmits speed, time of day and number of miles the car is driven. There is no GPS in the Snapshot device, so no location information is collected. Cars that are driven less often, in less-risky ways, and at less-risky times of day, can receive large discounts. Progressive has received patents on its methods and systems of implementing usage-based insurance and has licensed these methods and systems to other companies.

3.9.5 Credit ratings

Insurance companies have started using credit ratings of their policyholders to determine risk. Drivers with good credit scores get lower insurance premiums, as it is believed that they are more financially stable, more responsible and have the financial means to better maintain their vehicles. Those with lower credit scores can have their premiums raised or insurance canceled outright. It has been shown that good drivers with spotty credit records could be charged higher premiums than bad drivers with good credit records.

4. Behavior-based insurance

The use of non-intrusive load monitoring to detect drunk driving and other risky behaviors has been proposed. A US patent application combining this technology with a usage based insurance product to create a new type of behavior based auto insurance product is currently open for public comment on peer to patent. See Behavior-based safety

Read More

Travel insurance

Travel insurance is insurance that is intended to cover medical expenses, financial default of travel suppliers, and other losses incurred while traveling, either within one's own country, or internationally. Temporary travel insurance can usually be arranged at the time of the booking of a trip to cover exactly the duration of that trip, or a "multi-trip" policy can cover an unlimited number of trips within a set time frame. Coverage varies, and can be purchased to include higher risk items such as "winter sports".

1. Coverage types

The most common risks that are covered by travel insurance are:

• Medical Emergency (Accident or Sickness)
• Emergency evacuation
• Repatriation of remains
• Return of a minor
• Trip cancellation
• Trip interruption
• Accidental death, injury or disablement benefit
• Overseas funeral expenses
• Lost, stolen or damaged baggage, personal effects or travel documents
• Delayed baggage (and emergency replacement of essential items)
• Flight Connection was missed due to airline schedule
• Travel Delays due to weather

2. Optional coverage

Some travel policies will also provide cover for additional costs, although these vary widely between providers.

In addition, often separate insurance can be purchased for specific costs such as:

• Pre-existing conditions (e.g. asthma, diabetes)
• Sports with an element of risk (e.g. skiing, scuba diving)
• Travel to high risk countries (e.g. due to war, natural disasters or acts of terrorism)
• Additional AD&D coverage
• 3rd Party Supplier insolvency (e.g. the hotel or airline to which you made nonrefundable pre-payments has gone into administration)

3. Common exclusions

• Pre-existing medical conditions
• War or terrorism - but some plans may cover this risk, and some do cover for acts of terrorism
• Injury or illness caused by alcohol or drug use

Usually, the insurers cover pregnancy related expenses, if the travel occurs within the first trimester. After that, insurance coverage varies from insurer to insurer.

Travel insurance can also provide helpful services, often 24 hours a day, 7 days a week that can include concierge services and emergency travel assistance.

Read More

Satellite insurance

Satellite insurance is a specialized branch of aviation insurance in which, as of 2000, about 20 insurers worldwide participate directly. Others participate through reinsurance contracts with direct providers. It covers three risks: relaunching the satellite if the launch operation fails; replacing the satellite if it is destroyed, positioned in an improper orbit, or fails in orbit; and liability for damage to third parties caused by the satellite or the launch vehicle.

In 1965 the first satellite insurance was placed with Lloyds of London to cover physical damages on pre-launch for the "Early Bird" satellite Intelsat I. In 1968 coverage was arranged for pre-launch and launch perils for the Intelsat III satellite. Satellites are very complex machines which are manufactured and used by governments and a few larger companies. The budget for a typical satellite project can be in excess of billions of dollars and can run 5–10 years including the planning, manufacturing, testing, and launch.

1. Types of coverage

Insurance available for satellites is divided into two sections, satellite coverage and ground risk coverage.

2. Satellite risk

Satellite risk coverage is insurance against damage to the satellite itself. There are four basic types of coverage available in this section.

• Pre-launch insurance provides coverage for loss or damage to satellite or its components from the time they leave the manufacturer's premises, during the transit to the launch site, through testing, fueling, and integration with the launcher up until the time the launcher's rocket engines are ignited for the purpose of the actual launch.
• Launch insurance provides coverage for the period from the intentional ignition of the engines until the satellite separate from the final stage of the launch vehicle, or it may continue until completion of the testing phase in orbit. Typical coverage usually runs for a period of twelve months but is limited to 45–60 days in respect of testing phase in orbit. Launch failure is the greatest probability of satellite loss and approximately 7% of satellites have failed on launch.

• Coverage while in orbit provides for physical loss, damage, or even failure of the insured satellite while in orbit or during orbit placement. Elements of risk attached to satellites during orbit are damage caused by objects in the hostile space environment, extremes of temperature, and radiation. Because it is not typically possible to repair a satellite once it is physically placed in orbit, the coverage is basically granted as a product guarantee.
• Third party liability is the final section of the policy, and is a statutory requirement of the Government of the nation where the launch will take place, regardless of the nationality of the satellite owner. A special license must be provided to the regulating authorities before a launch can take place. Coverage usually runs up to 90 days following the actual launch. Loss of revenue coverage is also available but is not purchased often.

3. Ground risk

As many ground stations are run by large government entities such as NASA, failure on the part of the insured is rare. In cases where failure occurs due to events which are beyond the control of the insured (such as an earthquake), coverage provides for the cost of hiring premises, replacing computer systems, software backup, and other items necessary to resume operations.

4. Underwriting considerations

When considering a rating structure for satellite insurance coverage, during the early days many insurers based their rating according to the launch vehicle. For example, if the launch vehicle being used had a one in ten failure rate, the insurance premium would be ten per cent of the gross cost. Today insurers use statistics and computer modeling to arrive at premium rates, although data for calculations is limited. Another aspect of satellite insurance is the procedure attached to salvage. Though it is impossible to obtain monetary value from the wreckage in the event of an actual total loss or constructive total loss, many insurers rely on sharing any revenue which may be obtainable from the failed satellite with the insured.

5. Regulation

Rules of satellite launch technology is governed by International Traffic in Arms Regulation (ITAR) in the United States. The regulation states that details of any technology provided to insurance underwriters are subject to strict rules and are provided to selected insurers only. This is an important consideration as the structure and technology used on launch vehicles is similar to missile technology for weapons. Failure to comply with ITAR rules could result heavy fines and imprisonment. In case where reinsurance coverage is arranged, re-insurers who provide such coverage have to rely on very limited information.

Read More

Marine insurance

Marine insurance covers the loss or damage of ships, cargo, terminals, and any transport or cargo by which property is transferred, acquired, or held between the points of origin and final destination..

Cargo insurance — discussed here — is a sub-branch of marine insurance, though Marine also includes Onshore and Offshore exposed property (container terminals, ports, oil platforms, pipelines); Hull; Marine Casualty; and Marine Liability.

1. Origins of formal marine insurance

Maritime insurance was the earliest well-developed kind of insurance, with origins in the Greek and Roman maritime loan. Separate marine insurance contracts were developed in Genoa and other Italian cities in the fourteenth century and spread to northern Europe. Premiums varied with intuitive estimates of the variable risk from seasons and pirates.

The modern origins of marine insurance law in English law were in the law merchant, with the establishment in England in 1601 of a specialized chamber of assurance separate from the other Courts. Lord Mansfield, Lord Chief Justice in the mid-eighteenth century, began the merging of law merchant and common law principles. The establishment of Lloyd's of London, competitor insurance companies, a developing infrastructure of specialists (such as shipbrokers, admiralty lawyers, bankers, surveyors, loss adjusters, general average adjusters, et al), and the growth of the British Empire gave English law a prominence in this area which it largely maintains and forms the basis of almost all modern practice. The growth of the London insurance market led to the standardization of policies and judicial precedent further developed marine insurance law. In 1906 the Marine Insurance Act was passed which codified the previous common law; it is both an extremely thorough and concise piece of work. Although the title of the Act refers to marine insurance, the general principles have been applied to all non-life insurance.

In the 19th century, Lloyd's and the Institute of London Underwriters (a grouping of London company insurers) developed between them standardized clauses for the use of marine insurance, and these have been maintained since. These are known as the Institute Clauses because the Institute covered the cost of their publication.

Within the overall guidance of the Marine Insurance Act and the Institute Clauses parties retain a considerable freedom to contract between themselves.

Marine insurance is the oldest type of insurance. Out of it grew non-marine insurance and reinsurance. It traditionally formed the majority of business underwritten at Lloyd's. Nowadays, Marine insurance is often grouped with Aviation and Transit (cargo) risks, and in this form is known by the acronym "MAT".

2. Practice

The Marine Insurance Act includes, as a schedule, a standard policy (known as the "SG form"), which parties were at liberty to use if they wished. Because each term in the policy had been tested through at least two centuries of judicial precedent, the policy was extremely thorough. However, it was also expressed in rather archaic terms. In 1991, the London market produced a new standard policy wording known as the MAR 91 form and using the Institute Clauses. The MAR form is simply a general statement of insurance; the Institute Clauses are used to set out the detail of the insurance cover. In practice, the policy document usually consists of the MAR form used as a cover, with the Clauses stapled to the inside. Typically each clause will be stamped, with the stamp overlapping both onto the inside cover and to other clauses; this practice is used to avoid the substitution or removal of clauses.

Because marine insurance is typically underwritten on a subscription basis, the MAR form begins: We, the Underwriters, agree to bind ourselves each for his own part and not one for another [...]. In legal terms, liability under the policy is several and not joint, i.e., the underwriters are all liable together, but only for their share or proportion of the risk. If one underwriter should default, the remainder are not liable to pick his share of the claim.

Typically, marine insurance is split between the vessels and the cargo. Insurance of the vessels is generally known as "Hull and Machinery" (H&M). A more restricted form of cover is "Total Loss Only" (TLO), generally used as a reinsurance, which only covers the total loss of the vessel and not any partial loss.

Cover may be on either a "voyage" or "time" basis. The "voyage" basis covers transit between the ports set out in the policy; the "time" basis covers a period of time, typically one year, and is more common.

3. Protection and indemnity

A marine policy typically covered only three-quarter of the insured's liabilities towards third parties. The typical liabilities arise in respect of collision with another ship, known as "running down" (collision with a fixed object is an "harbour"), and wreck removal (a wreck may serve to block a harbour, for example).

In the 19th century, shipowners banded together in mutual underwriting clubs known as Protection and Indemnity Clubs (P&I), to insure the remaining one-quarter liability amongst themselves. These Clubs are still in existence today and have become the model for other specialized and noncommercial marine and non-marine mutuals, for example in relation to oil pollution and nuclear risks.

Clubs work on the basis of agreeing to accept a shipowner as a member and levying an initial "call" (premium). With the fund accumulated, reinsurance will be purchased; however, if the loss experience is unfavourable one or more "supplementary calls" may be made. Clubs also typically try to build up reserves, but this puts them at odds with their mutual status.

Because liability regimes vary throughout the world, insurers are usually careful to limit or exclude American Jones Act liability.

4. Actual total loss and constructive total loss

These two terms are used to differentiate the degree of proof where a vessel or cargo has been lost. An actual total loss occurs where the damages or cost of repair clearly equal or exceed the value of the property. A constructive total loss is a situation where the cost of repairs plus the cost of salvage equal or exceed the value.

The use of these terms is contingent on there being property remaining to assess damages, which is not always possible in losses to ships at sea or in total theft situations. In this respect, marine insurance differs from non-marine insurance, where the insured is required to prove his loss. Traditionally, in law, marine insurance was seen as an insurance of "the adventure", with insurers having a stake and an interest in the vessel and/or the cargo rather than simply an interest in the financial consequences of the subject-matter's survival.

5. Average

The term "Average" has two meanings:

1. In marine insurance, in the case of a partial loss or emergency repairs to the vessel, average may be declared. This covers situations where, for example, a ship in a storm might have to jettison certain cargo to protect the ship and the remaining cargo. "General Average" requires all parties concerned in the venture (Hull/Cargo/Freight/Bunkers) to contribute to compensate the losses caused to those whose cargo has been lost or damaged. "Particular Average" is levied on a group of cargo owners and not all of the cargo owners.
2. In the situation where an insured has under-insured, i.e., insured an item for less than it is worth, average will apply to reduce the amount payable. There are different ways of calculating average, but generally the same proportion of under-insurance will be applied to any payout due.

An average adjuster is a marine claims specialist responsible for adjusting and providing the general average statement. He is usually appointed by the shipowner or insurer.

6. Excess, deductible, retention, co-insurance, and franchise

An excess is the amount payable by the insured and is usually expressed as the first amount falling due, up to a ceiling, in the event of a loss. An excess may or may not be applied. It may be expressed in either monetary or percentage terms. An excess is typically used to discourage moral hazard and to remove small claims, which are disproportionately expensive to handle. In marine The term "excess" signifies the "deductible" or "retention".

A co-insurance, which is typically governs non-proportional treaty reinsurance, is an excess expressed as a proportion of a claim in percentage terms and applied to the entirety of a claim.

A franchise is a deductible below which nothing is payable and beyond which the entire amount of the sum insured is payable. It is typically used in reinsurance arbitrage arrangements.

7. Tonners and chinamen

These are both obsolete forms of early reinsurance. Both are technically unlawful, as not having insurable interest, and so were unenforceable in law. Policies were typically marked P.P.I. (Policy is Proof of Interest). Their use continued into the 1970s before they were banned by Lloyd's, the main market, by which time, they had become nothing more than crude bets.

A "tonner" was simply a "policy" setting out the global gross tonnage loss for a year. If that loss was reached or exceeded, the policy paid out. A "chinaman" applied the same principle but in reverse: thus, if the limit was not reached, the policy paid out.

8. Specialist policies

Various specialist policies exist, including:

Newbuilding risks: This covers the risk of damage to the hull while it is under construction.

Yacht Insurance: Insurance of pleasure craft is generally known as "yacht insurance" and includes liability coverage. Smaller vessels such as yachts and fishing vessels are typically underwritten on a "binding authority" or "lineslip" basis.

War risks: General hull insurance does not cover the risks of a vessel sailing into a war zone. A typical example is the risk to a tanker sailing in the Persian Gulf during the Gulf War. The war risks areas are established by the London-based Joint War Committee, which has recently moved to include the Malacca Straits as a war risks area due to piracy. If an attack is classified as a "riot" then it would be covered by war-risk insurers.

Increased Value (IV): Increased Value cover protects the shipowner against any difference between the insured value of the vessel and the market value of the vessel.

Overdue insurance: This is a form of insurance now largely obsolete due to advances in communications. It was an early form of reinsurance and was bought by an insurer when a ship was late at arriving at her destination port and there was a risk that she might have been lost (but, equally, might simply have been delayed). The overdue insurance of the Titanic was famously underwritten on the doorstep of Lloyd's.

Cargo insurance: Cargo insurance is underwritten on the Institute Cargo Clauses, with coverage on an A, B, or C basis, A having the widest cover and C the most restricted. Valuable cargo is known as specie. Institute Clauses also exist for the insurance of specific types of cargo, such as frozen food, frozen meat, and particular commodities such as bulk oil, coal, and jute. Often these insurance conditions are developed for a specific group as is the case with the Institute Federation of Oils, Seeds and Fats Associations (FOFSA) Trades Clauses which have been agreed with the Federation of Oils, Seeds and Fats Associations and Institute Commodity Trades Clauses which are used for the insurance of shipments of cocoa, coffee, cotton, fats and oils, hides and skins, metals, oil seeds, refined sugar, and tea and have been agreed with the Federation of Commodity Associations.

8. Warranties and conditions

A peculiarity of marine insurance, and insurance law generally, is the use of the terms condition and warranty. In English law, a condition typically describes a part of the contract that is fundamental to the performance of that contract, and, if breached, the non-breaching party is entitled not only to claim damages but to terminate the contract on the basis that it has been repudiated by the party in breach. By contrast, a warranty is not fundamental to the performance of the contract and breach of a warranty, while giving rise to a claim for damages, does not entitle the non-breaching party to terminate the contract. The meaning of these terms is reversed in insurance law. Indeed, a warranty if not strictly complied with will automatically discharge the insurer from further liability under the contract of insurance. The assured has no defense to his breach, unless he can prove that the insurer,by his conduct has waived his right to invoke the breach, possibility provided in section 34(3) of the Marine Insurance Act 1906 (MIA). Furthermore in the absence of express warranties the MIA will imply them, notably a warranty to provide a seaworthy vessel at the commencement of the voyage in a voyage policy (section 39(1)) and a warranty of legality of the insured voyage (section 41).

9. Salvage and prizes

The term "salvage" refers to the practice of rendering aid to a vessel in distress. Apart from the consideration that the sea is traditionally "a place of safety", with sailors honour-bound to render assistance as required, it is obviously in underwriters' interests to encourage assistance to vessels in danger of being wrecked. A policy will usually include a "sue and labour" clause which will cover the reasonable costs incurred by a shipowner in his avoiding a greater loss.

At sea, a ship in distress will typically agree to "Lloyd's Open Form" with any potential salvor. The Lloyd's Open Form is the standard contract, although other forms exist. The Lloyd's Open Form is headed "No cure — no pay"; the intention being that if the attempted salvage is unsuccessful, no award will be made. However, this principle has been weakened in recent years, and awards are now permitted in cases where, although the ship might have sunk, pollution has been avoided or mitigated. In other circumstances the "salvor" may invoke the SCOPIC terms (most recent and commonly used rendition is SCOPIC 2000) in contrast to the LOF (Lloyd's Open Form) these terms mean that the salvor will be paid even if the salvage attempt is unsuccessful. The amount the salvor receives is limited to cover the costs of the salvage attempt and 15% above it. One of the main negative factors in invoking SCOPIC (on the salvors behalf) is if the salvage attempt is successful the amount at which the salvor can claim under article 13 of LOF is discounted.

The Lloyd's Open Form, once agreed, allows salvage attempts to begin immediately. The extent of any award is determined later; although the standard wording refers to the Chairman of Lloyd's arbitrating any award, in practice the role of arbitrator is passed to specialist admiralty QCs.

A ship captured in war is referred to as a prize, and the captors entitled to prize money. Again, this risk is covered by standard policies.

10. Marine Insurance Act, 1906

The most important sections of this Act include:

§4: a policy without insurable interest is void.

§17: imposes a duty on the insured of uberrimae fides (as opposed to caveat emptor), i.e., that questions must be answered honestly and the risk not misrepresented.

§18: the proposer of the insurer has a duty to disclose all material facts relevant to the acceptance and rating of the risk. Failure to do so is known as non-disclosure or concealment (there are minor differences in the two terms) and renders the insurance voidable by the insurer.

§33(3): If [a warranty] be not [exactly] complied with, then, subject to any express provision in the policy, the insurer is discharged from liability as from the date of the breach of warranty, but without prejudice to any liability incurred by him before that date.

§34(2): where a warranty has been broken, it is no defence to the insured that the breach has been remedied, and the warranty complied with, prior to the loss.

§34(3): a breach of warranty may be waived (ignored) by the insurer.

§39(1): implied warranty that the vessel must be seaworthy at the start of her voyage and for the purpose of it (voyage policy only).

§39(5): no warranty that a vessel shall be seaworthy during the policy period (time policy). However if the assured knowingly allows an unseaworthy vessel to set sail the insurer is not liable for losses caused by unseasworthiness.

§50: a policy may be assigned. Typically, a shipowner might assign the benefit of a policy to the ship-mortgagor.

§§60-63: deals with the issues of a constructive total loss. The insured can, by notice, claim for a constructive total loss with the insurer becoming entitled to the ship or cargo if it should later turn up. (By contrast an actual total loss describes the physical destruction of a vessel or cargo.)

§79: deals with subrogation, i.e., the rights of the insurer to stand in the shoes of an indemnified insured and recover salvage for his own benefit.

Schedule 1 of the Act contains a list of definitions; schedule 2 contains the model policy wording.

Read More