The ignition circuit which includes different loads, the wiring can't all be protected by one fuse or breaker. In fact, I don't think with my set it, it's reasonable to protect each wire, stepping down in fusing for each wire size.

So when the 12 gauge line to my alternator melted through the insulation to the exhaust manifold, that formed a closed short circuit from the battery + and ground.

First, the 12 gauge wire became the fuse and incinerated the insulation between alternator and ignition panel. As I recall, that took long enough to allow a good deal of smoke to come up through the companionway. I turned the ignition switch off at the panel that opened the circuit. The burning was stopped then and the only wiring damaged was that 12 gauge between alternator and panel, and a few legs between engine gauges. About 20 feet!

Had I not turned it off, I surmise it would have continued to burn through the heavier 10 gauge also in that circuit, until-if some of the 12 finally burned and parted to break the circuit. I don't think a 30-50 amp fuse protecting the heavier gauge in the circuit, could be counted on to trip to save the lighter wire(?).

I wonder if in your case, you have a similar problem in that in the event of a dead short in your smaller gauge lines in the ignition circuit, you'll have a fire. I would think this has been sorted out on newer boats but maybe not all. It would require breaking the ignition circuit into separate circuits for various tasks.