Agreed Value vs Market Value Ship Insurance UK

How Agreed Value Works Under UK Hull Policies

Under an agreed value policy, you and underwriters fix the insured value of the vessel at inception. That figure is written into the policy as the 'agreed value' and, in the event of a total loss—actual or constructive—it is the sum paid without further argument about what the ship was worth on the open market at the time of the casualty. The Marine Insurance Act 1906 gives statutory force to this arrangement: a valued policy is conclusive between the parties as to the insurable value of the subject matter insured, absent fraud.

For a shipowner or operator, this certainty is the primary commercial benefit. You know your exposure, you can align the agreed value with your mortgage or finance facility, and you avoid the cost and delay of a post-loss valuation dispute. If your vessel is a specialist unit—an offshore support vessel, a purpose-built ferry, or a dredger—where comparable market sales are infrequent, agreed value removes the risk that underwriters appoint a surveyor who values the ship at a fraction of your replacement cost.

The agreed value also feeds directly into the constructive total loss (CTL) calculation under the Institute Hull Clauses (IHC 2003 or the older IHC 1983). A CTL arises when the cost of repair exceeds the agreed insured value. If your agreed value is set conservatively below the vessel's true worth, you may find that a repairable casualty is treated as a CTL—or conversely, that a genuinely uneconomic repair is not triggered as a CTL because the agreed value is too high relative to actual market value. Both mismatches have real financial consequences.

One discipline that agreed value does not remove is the obligation to maintain the vessel in class and in a seaworthy condition. Underwriters can still decline a claim where the loss arises from a breach of the seaworthiness warranty or from an excluded peril. The agreed value settles the quantum of a covered loss; it does not widen the scope of cover.

How Market Value Policies Work and Where They Leave You Exposed

A market value (or 'unvalued') policy does not fix the insured sum at inception. Instead, it sets a maximum limit of indemnity, and in the event of a total loss, the recoverable amount is the vessel's open-market value immediately before the casualty—subject to that maximum. The Marine Insurance Act 1906 defines the insurable value of a ship as the value at the commencement of the risk, including freight at risk and charges of insurance, but in practice underwriters will commission a post-loss valuation, and that figure governs your settlement.

The practical risk for you as an owner is that vessel values move. A bulk carrier or tanker that was worth USD X at policy inception may be worth considerably less twelve months later if the secondhand market has softened. If you suffer a total loss in a depressed market, your recovery is pegged to that depressed value—not to what you paid for the vessel, not to what your bank financed, and not to what it would cost you to replace it with an equivalent unit.

Market value policies are more common in certain segments—older tonnage where agreed values are hard to justify to underwriters, or where the owner's primary concern is third-party liability rather than hull recovery. They can also appear in fleet arrangements where individual vessel values are not declared at inception. If you are operating under a market value basis, you should review the vessel's current market value against your limit of indemnity at every renewal and consider whether the gap between the two creates an unacceptable exposure.

There is also a subtler issue with partial losses. Under a market value policy, underwriters may argue that the measure of indemnity for a partial loss should reflect the depreciated condition of the vessel, not simply the cost of repair. Under an agreed value policy, the IHC repair cost provisions apply more cleanly. This distinction matters most for older vessels where wear and tear arguments are most likely to arise.

Key Differences: What to Check Before You Bind

The following points are the ones your broker should be working through with underwriters before the slip is signed, not after a casualty has occurred.

• Valuation basis: Is the agreed value supported by a recent independent survey or broker's valuation? Underwriters in the London and company markets will increasingly require evidence for high-value or specialist tonnage.
• Over-insurance and under-insurance: If your agreed value materially exceeds market value, some underwriters will seek to limit recovery on a proportionality basis or apply average. Confirm whether the policy contains any averaging provision.
• CTL threshold: Under IHC 2003, the CTL threshold is repair cost exceeding the insured value. Confirm whether your policy uses the agreed value or an independently assessed market value as the comparator.
• Mortgage clause: If your vessel is financed, your mortgagee bank will require the agreed value to meet or exceed the outstanding loan. Confirm the mortgagee is noted on the policy and that the agreed value aligns with the facility.
• Depreciation on renewal: Agreed values do not automatically reduce year-on-year. If your vessel is depreciating, you and your broker should review whether the agreed value remains defensible—an over-valued agreed value can complicate renewal negotiations.
• Sue-and-labour costs: Both agreed value and market value policies should include sue-and-labour provisions under the IHC, allowing you to recover reasonable costs incurred to avert or minimise a covered loss. Confirm this is not inadvertently excluded in any bespoke wording.

General Average, Salvage and How Valuation Basis Affects Your Exposure

General average (GA) is one area where the distinction between agreed value and market value has a direct cash-flow impact. Under the York-Antwerp Rules (most commonly YAR 2016 or YAR 1994 as incorporated in your bill of lading or charterparty), GA contributions are calculated by reference to the salved value of the contributing interests at the end of the voyage. For hull, that means the market value of the vessel at the port of refuge or destination—not your agreed insured value.

This creates a potential mismatch. If your agreed value is higher than the vessel's salved market value, your hull underwriters will contribute to GA on the basis of the lower market value. If your agreed value is lower than market value, you may find your GA contribution exceeds what your hull policy will pay, leaving a gap you must fund yourself. Your broker should model this scenario when setting the agreed value, particularly for vessels trading on routes where GA events are more frequent—container trades, bulk trades with heavy weather exposure, or routes transiting areas of elevated salvage risk.

Salvage under LOF (Lloyd's Open Form, the standard salvage contract) is assessed separately, but the salved value of the vessel again feeds into the award. An agreed value that is out of step with market reality can complicate LOF negotiations and, in extreme cases, affect whether a salvor is willing to engage on no-cure-no-pay terms. Your P&I Club will have a view on this and it is worth aligning your hull valuation strategy with your P&I entry.

Cargo, Freight and Liability: Valuation Basis Across Your Full Programme

If you are a freight forwarder or cargo owner as well as a vessel operator, the agreed versus market value question extends beyond your hull policy. Under Institute Cargo Clauses (A), the insured value of cargo is typically the invoice value plus freight plus a percentage uplift to cover anticipated profit. This is effectively an agreed value approach—you declare the value at shipment and that figure governs the claim. The key discipline is ensuring the declared value reflects the actual commercial value of the goods, not a compressed figure chosen to reduce premium.

For freight liability, the picture is different. If you are a carrier subject to Hague-Visby Rules, your liability for cargo loss or damage is limited by the package or unit limitation in Article IV Rule 5—a figure expressed in Special Drawing Rights (SDRs). That statutory cap may be far below the actual value of the cargo you are carrying. Your freight liability policy should be structured to respond up to the actual cargo value where the limitation is broken (for example, by a shipper's declaration of value) or where you have agreed to trade on terms that exclude the limitation.

P&I cover sits alongside your hull policy and responds to third-party liabilities—cargo claims, collision liability (the excess above the three-quarters collision liability in your hull policy), crew claims under MLC 2006, and wreck removal. The LLMC 1976 (as amended by the 1996 Protocol) provides a global limitation fund based on the vessel's tonnage expressed in SDRs, but that limitation can be broken if the claimant proves the loss resulted from your personal act or omission with intent to cause such loss or recklessly. Your P&I entry should be reviewed alongside your hull valuation to ensure the two programmes are coherent.

What to Bring to Your Broker When Requesting a Quote

The quality of information you provide at the quoting stage directly affects the terms underwriters offer. For hull and machinery, the minimum you should prepare is set out below. For cargo and freight liability, your broker will advise on the additional declarations required.

• Vessel particulars: IMO number, flag, class society and class status, year of build, GT/NT, type and trade.
• Current valuation: A recent independent survey or broker's valuation supporting your proposed agreed value, or confirmation that you are seeking a market value basis and why.
• Trading area: Full details of intended trading limits, including any high-risk areas (war risk zones, ice trading, areas subject to IUMI or JCC listed area surcharges).
• Loss record: Five years of claims history across hull, P&I and cargo, with brief narrative on any major casualties.
• Mortgage or finance details: Name of mortgagee bank and outstanding loan amount if the vessel is financed.
• Crew information: Number of crew, nationalities, certificates held, and confirmation of MLC 2006 compliance if applicable.
• Existing cover: Current policy wording, expiry date, and any endorsements or exclusions in force.

Frequently asked questions

Do I need an independent survey to support my agreed value?

For most vessels above a modest size threshold, specialist underwriters in the London market will expect some evidential basis for the agreed value—particularly on first placement or where the proposed value differs materially from the vessel's age-depreciated book value. A recent class survey report, a broker's desktop valuation, or a formal appraisal from a recognised ship valuer will all support your position. Without it, underwriters may either decline to agree the value or impose a lower figure, which could leave you under-insured relative to your financing obligations.

What happens if my vessel's market value falls below the agreed value during the policy year?

Under a properly worded agreed value policy governed by the Marine Insurance Act 1906, the agreed value is conclusive for total loss purposes and underwriters cannot unilaterally reduce it mid-term. However, if the gap between agreed value and market value becomes very wide, you may face difficult renewal negotiations, and in some cases underwriters will seek to apply an averaging provision on partial losses if the policy wording permits it. Review your wording carefully—if it contains any market value averaging clause, that needs to be removed or negotiated out before you bind.

How does the agreed value interact with my bank's mortgage requirement?

Your mortgagee bank will typically require the agreed insured value to equal or exceed the outstanding loan balance, and will require to be noted as mortgagee on the policy with a standard mortgagee interest clause. If the vessel depreciates and the agreed value falls below the loan balance at renewal, your bank may require you to top up the agreed value or provide additional security. Aligning your hull renewal with your annual loan review avoids a last-minute scramble to satisfy the bank's requirements.

Can I switch from market value to agreed value mid-term?

Yes, but it requires underwriters' agreement and will typically be treated as a material change to the risk, potentially triggering a premium adjustment and a fresh survey requirement. It is far cleaner to make this change at renewal. If you are currently on a market value basis and want to move to agreed value, raise it with your broker at least sixty days before expiry to allow time for valuation evidence to be gathered and underwriters to be approached.

Does the agreed value cover my cargo as well as the vessel?

No. Your hull and machinery policy covers the vessel itself. Cargo carried on your vessel is a separate insurable interest and requires its own cover—either under a cargo policy placed by the cargo owner under Institute Cargo Clauses (A, B or C), or under a freight liability policy if you are the carrier. If you are both the vessel operator and the cargo owner, you need both a hull policy and a cargo policy, and the agreed values in each should be set independently to reflect the respective insurable interests.

What information do you need from me to get a quote?

At minimum: IMO number, flag and class status, year of build, vessel type, proposed agreed value with supporting evidence, intended trading area, five years of claims history, and details of any mortgage. For cargo or freight liability cover, we will also need commodity types, annual shipment volumes, and the trade lanes you use. The more complete your submission, the faster we can approach underwriters and the more competitive the terms we can secure.