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Understanding Accumulation Clause in Marine Insurance

Posted on 16 Jan, 2025
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Marine insurance covers businesses from shipping items across oceans, rivers and other waterways. A seldom cited but critical component of a marine insurance policy is the accumulation clause. This blog discusses the accumulation clause and its implications for marine insurance on the whole.

Marine Insurance

What is the Accumulation Clause in Marine Insurance?

The accumulation clause within a marine insurance policy will be the provision which extends the insurer's liability in case products or cargo go over the agreed limit of liability because of unexpected events.

Imagine two USD 1 million shipments are delayed and stored in the same port due to unfavourable circumstances. In case of an accident, the insurer will cover up to USD 2 million under the accumulation clause in the event the responsibility limit is USD one million.

This clause enables businesses to be flexible if some shipments are unintentionally consolidated.

Why does the accumulation clause cover marine insurance?

a) Practical challenges addressed: In shipping, delays, port congestion or natural disasters might lead to piled up cargo. Without an accumulation clause, the excess of accumulated goods might not be covered and this might result in great monetary losses.

b) Increases coverage confidence: Businesses can rest easy knowing their marine insurance covers an accidental accumulation.

c) Responds to change in shipping practices: Cargo accumulation risk is greater with global trade growing and ports busier than ever. These modern issues are taken into account by the accumulation clause.

d) Avoids legal disputes: This clause spells out the limits of liability in unusual situations and could make it less likely that the insured and the insurer will get into a fight.

The most important parts of the accumulation clause

i) Trigger events: These are things like natural disasters, strikes, or crowded ports that cause cargo to build up.

ii) Clear limits: The clause boosts liability, but it has a limit on how much it can cost insurers.

iii) Conditions for application: The clause only applies to unplanned accumulation that is out of the insured's control.

When does the accumulation clause come into play?

When you have marine insurance, the accumulation clause doesn't work the same way for everyone. It's true in some situations, such as

a) Port congestion: Ships can't unload their cargo when there are delays at busy ports. Hurricanes and floods are two examples of natural disasters that can delay or pile up shipments.

b) Customs hold ups: Goods are held up while paperwork and inspections are done.

c) Transportation delay: Connecting shipping services aren't lining up right, and a lot of shipments are being stored together.

When it comes to the accumulation clause, what helps businesses?

The accumulation clause applies to companies that import and export goods or do a lot of logistics:

a) Financial protection: Covers more than the standard limits in case costs pile up for no reason.

b) Risk mitigation: This protects businesses from huge losses that can't be avoided when things go wrong.

c) Operational continuity: This makes sure that companies can get back to normal quickly and not fall into debt.

Advice for businesses on how to get the most out of the accumulation clause

1) Know your shipping routes: Know which ports and routes are busy and which ones are running late.

2) Tell your insurance company: Talk about possible risks with them often and make sure your policy covers them.

3) Limits on policy: Check out the policy limits: Check to see if the limit set by the accumulation clause matches the values of your business's shipments.

4) Keep good records: to back up claims, write down accumulation events.

5) Look over your policy once a year: As your business grows or your trade routes change, you may need to change your coverage.

Why the accumulation clause is important in today's shipping world

are now more shipments, more complicated supply chains, and more people in the ports than ever before. Businesses are protected against this harsh environment by the accumulation clause in marine insurance. This way, an unexpected event won't be able to take over their operations or finances.

The accumulation clause is an important part of marine insurance that is often overlooked. Businesses don't have to worry about unplanned cargo pileups because of this. It also protects their finances and keeps operations going. Companies need to understand these clauses in order to lower risk and get the most out of their marine insurance coverage when shipping terms change.

Conclusion

No matter if you are a small business or a global giant, it is important to understand the terms of your marine insurance policy. For example, the accumulation clause could make the difference between your goods being covered or not.

If you want to get marine insurance or replace an old policy, you should know about the accumulation clause. It gives your company the safety it needs in a rough shipping environment.

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This contains only an indication of the cover offered. For complete details on risk factors, terms, conditions, coverages and exclusions, please read the sales brochure carefully before concluding a sale.ICICI trade logo displayed above belongs to ICICI Bank and is used by ICICI Lombard GIC Ltd. under license and Lombard logo belongs to ICICI Lombard GIC Ltd. ICICI Lombard General Insurance Company Limited, ICICI Lombard House, 414, Veer Savarkar Marg, Prabhadevi, Mumbai – 400025. . IRDA Reg.No.115. Toll Free 1800 2666. Fax No – 022 61961323. CIN (L67200MH2000PLC129408). customersupport@iciclombard.com. www.icicilombard.com. (Marine Insurance, 4010 , IRDAN115P0010V01200607)