The Marine Insurance Act 1906 (MIA) makes it clear in section 52 that it is the concurrent duty of the assured or his agent to pay the premium and for the insurer to issue the policy. The policy form used by most insurers states that insurers agree to fulfil their obligations “in consideration of the payment of the premium”. In reality the premium is seldom paid at the time of commencement of cover, which means that cover is granted against the promise of payment.
Indeed the First Schedule to the Act gives a model policy form that uses the phrase ” confessing ourselves paid” as though acknowledging the actual unpaid state at the inception of cover. The term “Unless otherwise agreed” in section 52 allows insurers to defer the payment of premium.
When a broker is involved in placing the insurance it is he and not the assured who is responsible to the insurer for the payment of premium. However the insurers are responsible directly to the assured for the payment of claims and for any return of premiums, (MIA section 53). To protect the broker from non-payment the Act allows a lien upon the policy against outstanding debt, (MIA section 53.2).
In practice premium is calculated by applying a rate percent to the sum insured. The insurer, taking into consideration all the risk aspects of the particular sending arrives at the rate %. The susceptibility of the goods for theft or damage is a major consideration as indeed is the quality of packing, the method of carriage the destination and of course the claims history.
The insurers skill (some would say his second skill behind his speed and accuracy of claims settlement) is to apply a fair and reasonable rate for the risk in hand that, to his knowledge, will provide sufficient to meet the cost of claims, the expense of insuring and leave something for profit.
The insurer of an Open policy has an option. Depending upon the assured’s requirements, he can charge premium at regular intervals, usually monthly. This is either in accordance with declarations/certificates received during the last 30 days, or by taking a deposit premium usually based upon the estimated annual sendings of the assured to be adjusted at the years end against a declaration of the actual value of goods at risk.
The advantage of charging premium monthly is that the insurer can see at regular intervals precisely the pattern of trade and have a more up to date appreciation of the risk he is insuring. The disadvantage is that by charging monthly he is required to open his books 12 times a year in order to debit premium with the resultant expense of administration.
The advantage of the annual deposit and adjustment method is that administration costs are minimised but at the cost of losing the regular individual detail of sendings. Therefore some risks are better suited to one way than the other.