What a shipping company does
Spreading the risk
A ship is a huge capital investment, and one that is exposed to
many risks. Its cargo can also be very valuable: perhaps
worth even more than the ship if it includes manufactured
goods. The owner of the ship and the cargo shipper will therefore
usually take out insurance on the ship and on its cargo. The people
who carry that insurance are underwriters. They are so-called
because, when they accept a risk on a ship or cargo, they write
their name at the bottom of the policy document. Because the loss
of a ship can mean a very big claim, often more than one
underwriter or syndicate of underwriters will share a risk. Each
underwriter takes a percentage of the premium and the risk. Some owners or shippers will place their insurance directly with
a underwriter. Others - particularly if they are relatively small -
will use an insurance broker to get the best policy for their ship
or cargo 
 Wreck of `Mulheim` |
For many years, London has been a major centre for underwriting,
which extends beyond shipping to other risks, such as aircraft.
Many underwriters have their offices at Lloyd`s of London, which is
quite distinct from Lloyd`s
Register. If a shipping company is big enough, it may decide to carry its
own insurance. It calculates that if it puts aside the insurance
premiums it would pay out on a large fleet of ships, the money
would cover any loss that it could reasonably expect. For
instance, Blue Funnel Line had this policy, only insuring
itself against the possibility that two of its ships would be lost
in one year. A shipping company will also take out war risk insurance. In
peacetime, the risks and therefore the premiums are very low, but
the worst can happen. For instance, when the Arab-Israel War broke
out in 1967, a dozen ships were trapped in the Great Bitter Lakes
in the Suez Canal. Eventually, most of the owners abandoned these
to their war loss insurers. Of course, in time of war, the risks
become so high that insurers are reluctant to accept them. In the
two World Wars in the 20th Century the British Government had to
step in and offer war risk insurance to shipowners. Some owners or shippers will place their insurance directly with
an underwriter. Others - particularly if they are relatively small
- will use an insurance broker to get the best policy for their
ship or cargo.
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